Asia petchems mired in bearishness on elevated recession fears

Felicia Loo


SINGAPORE (ICIS)–Asian petrochemical markets are in a jam, with price bearishness across the board as recession risks continue to mount.

Elevated concerns on the economic front, from the fallout of the Russia-Ukraine conflict and sanctions on Russia, plus fears of upward spiralling inflation continue to weigh on sentiment.

The increase in interest rates from central banks to combat inflationary pressures around the world has also fanned concerns of sending the world into a recession.

In addition, it would be a long shot for markets to look to support from China, the world’s second-largest economy.

Supply recovery coupled with slow demand recovery led to an overall decline in China’s petrochemical market in June.

In early June, the market jumped quickly on the back of stimulus policies but has since retreated.

Compared with the end of May, the ICIS China Petrochemical Price Index fell 3.8%, to 1374.99 at the end of June.

Downstream by product, Asia’s monoethylene glycol (MEG) market plunged to its lowest level this week since the end of 2020, as the crude slump and weak downstream demand exerted downward pressure on spot discussions.

Polyester producers have started a new round of production cuts after reducing operations in April due to COVID-19 lockdowns in Shanghai, as end-demand remained sluggish amid global inflation and recession concerns.

Ongoing supply cuts did little to prevent the recent price declines, as the overall demand slowdown outweighed supply reductions.

Meanwhile, selling interest for light grade soda ash emerged at lower levels on the back of subdued buying interest.

Buyer sentiment in Asia was subdued on a combination of factors, including increased costs of imports due to the depreciation of Asian currencies, including the won and the baht against the US dollar.

Concerns that rising interest rates and pressure on working capital might continue to drag on downstream demand in the third quarter further weighed on restocking momentum in Asia.

The Asian methylene chloride (MEC) market will be under pressure from oversupply, as booming new capacity in India may quickly turn the country into an exporter.

In the second quarter of 2022, spot prices of MEC slumped quickly to the lowest level seen in more than a year, after the long uptrend that had started in the fourth quarter of 2021.

With the two-month COVID-19 lockdown in several Chinese cities, domestic consumption was significantly reduced, resulting in greater interest in exporting cargo overseas.

In regard to ethylene propylene diene monomer (EPDM), the spot market may stay bearish as demand has yet to pick up pace.

In the import-reliant southeast Asian and Indian outlets, CFR (cost & freight) prices have lost 10-12% between H2 May and end June, ICIS data shows.

Producers of recycled polyethylene terephthalate (R-PET) in Asia opened discussions for July-delivery cargoes on a soft note, as end-user demand was clipped by inflation across countries.

Uptake of fibre-grade R-PET flakes and pellets for low-end applications were significantly impacted, as converters opted to lift virgin PET materials on more competitive pricing.

Demand for R-PET cargoes for fibre applications is expected to further shrink, amid struggles to compete with lower-priced PET cargoes.

The ethanolamines markets in east Asia and south Asia look set to remain on a downtrend as demand remains in a low ebb.

Buyers remain hesitant to commit to large parcels, as most of them anticipate further weakness in the market.

Focus article by Felicia Loo

Additional reporting by Helen Lee, Clive Ong, Judith Wang, Keven Zhang, Ai Teng Lim and Arianne Perez

Photo: Asian petrochemical markets are bearish as recession risks continue to mount. (By RUNGROJ YONGRIT/EPA-EFE/Shutterstock)


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