Asia petrochemicals in doldrums on recession concerns, dull demand

SINGAPORE (ICIS)–Asian petrochemical markets are beset by recession fears, with sentiment leaning towards bearishness and demand subdued while supply increases.

• Central banks raising interest rates to tame inflation
• Russia-Ukraine conflict compounds surging food, energy prices
• Uncertainties abound in petrochemical sector

“The effects of higher energy and food prices, protracted inflation, tightening monetary policy across the world and the war in Ukraine has heightened the odds of recession,” said Kevin Swift, ICIS senior economist.

Global GDP growth is now expected to slow to just 3.1% in 2022 from 5.8% in 2021, while US GDP growth is projected to ease to 2.6% in 2022 from 5.7% in 2021, according to Swift, who also pegs the risk of a recession in the US in the next 12 months at 40-45%.

Reflecting the bearish situation, spot chemical prices were down 2.2% in the week, as latest figures from the ICIS Petrochemical Index (IPEX) showed.

Spot prices in northeast Asia were down 2.9%, with paraxylene (PX) and benzene leading the decline. Toluene was the only chemical to post a spot price increase.

The weekly ICIS petrochemical index tracks the movement of prices for the 12 major petrochemicals and polymers: ethylene, propylene, butadiene (BD), benzene, toluene, paraxylene (PX), polyethylene (PE), polypropylene (PP), styrene, polystyrene (PS), methanol and polyvinyl chloride (PVC) with regional indexes weighted by capacity. The weekly IPEX values are related to a January 2007 base of 100.

In the Asian acetic acid market, the buying mood was depressed by downbeat performance across most derivatives markets, amid higher inflation and rising interest rates.

Several acetic acid plants have restarted in China after maintenance shutdowns, further undermining the market.

In China, supply of paraxylene (PX) is set to rise due to restarts of PX facilities, alongside the successful start-up of a new facility operated by Sinopec Jiujiang Petrochemical.

Meanwhile, a weakening downstream purified terephthalic acid (PTA) market – coupled with sustained slow sales in the polyester sector – weighed on sentiment.

Asia’s monoethylene glycol (MEG) market outlook remained weak amid high port inventories and concerns over demand recovery.

China’s port inventories stood at nearly 1.2m tonnes, with no signs that inventories would drop sharply in the near term. Hence, buyers and end-users were not keen to procure import cargoes.

For polyvinyl chloride (PVC), sluggish local consumption amid some re-impositions of lockdowns in China have led to increased spot availability in the wider Asian region, while the onset of the monsoon season in the major import country of India has affected spot demand.

In regard to the Asian epoxy market, downstream spot demand largely retreated to the sidelines with significant wait-and-see attitudes observed, especially as the Chinese market was almost at a stalemate.

The markets of caprolactam (capro) and downstream nylon are particularly quiet, even during months where buyers are expected to restock against a backdrop of reduced operating rates.

Asian producers of recycled polyethylene (R-PE) have become cautious when it comes to plant expansions and equipment upgrades, as overall downstream demand softens on inflationary factors across the region.

Thumbnail photo: Currency trader walks near the screens showing the foreign exchange rates at a foreign exchange dealing room in Seoul, South Korea (Lee Jin-man/AP/Shutterstock)

Focus article by Felicia Loo

Additional reporting by Nurluqman Suratman, Helen Lee, Samuel Wong, Judith Wang, Jonathan Chou, Luffy Wu, Josh Quah and Joseph Chang