Asia petrochemical export opportunities to Europe growing amid energy crisis

SINGAPORE (ICIS)–Asian petrochemical markets could find new pockets of opportunities to export to the EU in the coming months as European producers continues to struggle with high production costs amid record energy prices.

Gas prices in the EU are now about 15 times higher than pre-crisis levels and considerably above those in Asia, leaving producers in Europe facing significant pressure to remain competitive against cheaper imports.

With Asian inventories piling up heading into the winter season amid slowing regional demand, several markets could find arbitrage windows opening up in the months ahead.

Ongoing lockdown measures in some parts of China, due to rising COVID-19 cases, are leading to uncertainties for production, operations, and logistics, according to ICIS senior analyst Amy Yu.

This may bring potential downward pressure to end-user demand in Asia which could provide further impetus to export to other regions.

“During the winter season, I believe that European market has to import polymer cargoes to meet their daily necessity demand, such as polyethylene terephthalate (PET) resin, polystyrene (PS) and expandable polystyrene (EPS). These products are the key materials for daily necessity packaging,” said ICIS analyst Jimmy Zhang.

“This situation has already started in the PET market since early 2022, partly due to the high energy prices. This should also occur in the PS and EPS industry in the fourth quarter. Currently, Asia PS and EPS supply is ample enough to export,” he said.

Europe local polypropylene (PP) supply might also decrease for the rest of 2022 due to high energy costs, according to ICIS senior analyst Joey Zhou.

“Concurrently, end-user consumption remains sluggish due to increasing inflation and high energy prices. However, while it is likely that Europe need to import more cargoes from global market, it will mainly come from Middle east,” Zhou said.

For Asian exporters,  the devaluation of local currency against US dollar and the decreased cross-regional freight costs could strengthen their opportunities to export PP, she said.

“There is possibility that while some PP volumes will be exported to Europe if an arbitrage window reopen, we expect that majority of the trading will be prioritised within Asia,” Zhou added.

For other upstream products such as styrene monomer (SM) and purified terephthalic acid (PTA), the demand from Europe is not expected to be sufficient enough to warrant imports from Asia, “although some of these plants are expected to shut down or lower run rates due to the high energy price… downstream derivatives units should run at low rates as well,” ICIS’ Zhang said.

Several Asian petrochemical markets have already been seeing a marked increase in exports to Europe this year, such as methylene diphenyl diisocyanate (MDI), toluene diisocyanate (TDI) and polyols.

Amid weak market conditions, some of which are expected to persist, northeast Asian producers for PMDI and polyols have sought to export more cargoes to European markets, citing better margins and increased buyer interest amid Europe’s production issues.

Market players in Europe also expect that more TDI cargoes of northeast Asian origin could arrive as contingency supplies. However, transport issues such as port delays in China, low Rhine river levels in Europe and a strengthening US dollar could impact these trade flows.

In the butyl acrylate (butyl-A) market, China’s exports of the material to Belgium has continued to increase, and these volumes are expected to be redistributed to other countries from there.

If Germany’s energy shortage continues, the export volume of butyl acrylate to the whole of Europe may continue to increase, according to market sources.

China exported 162,453 tonnes of butyl-A in January-June 2022, mainly to India, Turkey and Belgium.

As high costs are curbing chemical outputs in Europe, ICIS expects China’s butyl-A exports in 2022 to extend the growth before the outbreak of COVID-19 to nearly 300,000 tonnes, if there is no unexpected supply reduction like  in 2020-2021.

In the caustic soda market, the rebound in spot prices in recent weeks have seen excess spot availability from northeast Asian producers sold to Europe amid an open arbitrage window.

On the other hand, Europe’s availability of caustic soda has tightened considerably due to a producer’s ongoing force majeure. Producers’ operating rates across the region are also affected due to of high electricity prices and low chlorine demand.

In the polyvinyl chloride (PVC) market, no arbitrage trade has taken place between the Asia and Europe despite lower resin prices in the former, as demand in the EU has been suppressed due to a combination of factors such as the lull season, growing inflation and increased uncertainty in the downstream construction sector.

In China’s ethanolamines market, several participants talked of ongoing interest among Chinese buyers to stock up more material, on concerns that more material in China and Asia could be diverted to Europe.

Output in Europe could potentially be reduced amid soaring power costs. Consequently, users could turn to Asian spot cargoes to meet requirements.

In the Asian styrene butadiene rubber (SBR) market, the occasional arbitrage window for material from Asia to Europe has been heard, and is expected to remain open in theory in near term, according to ICIS senior analyst Ann Sun.

“This is not a typical route – Europe usually exports SBR to Asia in the past with the advantage lower feedstock costs. However, Asia has been the least-priced market for its feedstock butadiene (BD) since 2021,” Sun said.

Meanwhile, the European SBR market is experiencing solid demand and reduced output as some tyre production has been reallocated to Europe from Russia following the Russia-Ukraine conflict, while European SBR producers are running at reduced rates amid the high energy cost, she said.

“However, there are more problems rather than prices – freight rate competitiveness, product certification, volatile exchange rates and the sustainability of good demand in Europe. These may limit the arbitrage activities,” Sun added.

With additional reporting by Jonathan Chou, Clive Ong, Shannen Ng, Claire Gao and Yvonne Shi

Thumbnail photo: A freighter loading cargo to be exported at a container port in Quanzhou, southeast China’s Fujian Province. 15 July 2020 (Source: Xinhua/Shutterstock)

Focus article by Nurluqman Suratman

Click here to view the ICIS Coronavirus, oil price crash – impact on chemicals topic page.
Click here to read the Ukraine topic page, which examines the impact of the conflict on oil, gas, fertilizer and chemical markets.