Asia petrochemicals stay bearish as China keeps zero-COVID policy

Nurluqman Suratman


SINGAPORE (ICIS)–Bearish sentiment prevails across Asia’s petrochemical markets with no immediate end in sight on China’s zero-COVID strategy, which has been weighing on overall industrial activities of the world’s second-biggest economy.

Market players do not expect tough COVID-19 restrictions to be lifted when the ongoing 20th National Congress of the Communist Party of China (NCCPC) in Beijing concludes next week.

The congress is held every five years to elect Beijing’s political leaders. Incumbent President Xi Jinping is expected to be given a third term.

China is the world’s largest petrochemicals consumer and importer, and its slowing growth is forcing changes to supply chains and trade routes amid an energy-led surge in operating costs of production globally.

Production of many end-user products in Asia is expected to remain soft in the fourth quarter as demand from the west fades and China’s demand continues to be weighed down by COVID-19 curbs, according to ICIS senior analyst Ann Sun.

Xi, in his opening speech at the NCCPC on 16 October, defended his zero-COVID policy and did not provide a clear timeline for exiting it.

Market activities in China have remained generally subdued following a week-long holiday on 1-7 October, with post-holiday price gains largely driven by crude spikes when Chinese markets were closed.

In the ethanolamines market, competitively priced materials from the Middle East and Europe are being sold into India in the absence of strong demand from China.

Sellers are offloading cargoes for cheap into India as they expect no recovery in Chinese demand in the near term.

In the oleochemicals market, demand from China is expected to remain sluggish for the rest of the fourth quarter.

The continued decline in feedstock palm kernel oil (PKO) prices, meanwhile, has curbed spot interest in mid-cut C12-14 fatty alcohols, as buyers stayed on the sidelines.

In the acrylonitrile (ACN) market, prices were largely firmer this week due to tight supply but no significant improvement in downstream demand was observed.

For bisphenol A (BPA), Chinese import prices have fallen to a near one-month low on poor buying interest, which may not pick up any time soon because of market uncertainties.

In the monoethylene glycol (MEG) market, buyers and end-users remained on the sidelines, with downstream polyester plants in China running at reduced rates to cope with rising inventories and dwindled demand.

The low operating rates may persist until the end of the year as the market braces for new capacities starting up in China.

China’s COVID-19 caseload has remained high, rising nearly 1,000 a day, following its week-long National Day celebration.

On 20 October, the country reported 997 new COVID-19 cases, up from 962 a day earlier, the National Health Commission said on Friday.

The main coal producing areas of Inner Mongolia and Shanxi are the most hit, disrupting coal mining and transportation.

This should support elevated coal prices in China in October, and even into November, according to ICIS’ Sun.

“We maintain the view that Beijing will keep the zero-COVID strategy (ZCS) at least until March 2023… and we also expect a slow pace of easing of the ZCS after March next year,” Japan-based Nomura Global Markets Research said in a note earlier this week.

“Whether or not Beijing decides to start easing its ZCS from March 2023, we expect the economy and markets to experience a difficult period, as people will be either disappointed about no real opening or be overwhelmed by surging COVID infection numbers,” it said.

Quoting unnamed people familiar with policy discussions, newswire agency Bloomberg reported on 20 October that Chinese officials were considering easing current mandatory quarantine requirements for travellers to the country to seven days from 10 days

China, the second-biggest economy in the world, is slowing down, with GDP growth projected to decelerate to 2.8%, coming from an 8.1% expansion in 2021, because of COVID-19 lockdowns and amid a real estate market downturn.

Focus article by Nurluqman Suratman

Thumbnail image: The 20th National Congress of the Communist Party of China (CPC) opened on 16 October in Beijing, China. Daily life in Shanghai amid the CPC Congress on 17 October 2022 (By ALEX PLAVEVSKI/EPA-EFE/Shutterstock)

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