BLOG: Naphtha markets underline why ‘Micawberism’ is not the answer

John Richardson


SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson. Asian naphtha markets confirm that “Micawberism” – hoping that something will just turn up to put things right – won’t do. The chemicals industry has been very lucky because of a long period of favourable events, from huge China and Western central bank stimulus to a benign inflation and geopolitical environmental. No longer – we have run bang out of luck:

  • The January-September 2022 multiple of BFOE crude prices per barrel over CFR Japan prices per tonne averaged just 7.9. The lowest multiple so far this year was 6.9 in August. The January-September 2022 multiple was the lowest on an annual basis since our naphtha price assessments began in March 1990. This weak multiple reflects the collapse of chemicals demand for naphtha.
  • Some 29% of China’s GDP is driven by the real-estate sector. The real estate bubble has burst, for good, leaving behind vast amounts of debt and large quantities of unsellable apartments and land.
  • China’s president, Xi Jinping, in a speech to last week’s 20th National Congress, emphasised national security and praised the success of the Zero-COVID campaign. This indicates that the zero-COVID polices, which have hamstrung China’s economy, will continue. What choice does China really have, though? Because of the limited effectiveness of local vaccines, relaxation of zero-COVID could overwhelm the healthcare system.
  • Around 20% of China’s economy is dependent on exports. There was always going to be a decline in China’s exports because of the cycle out of goods and into services when the peak of the pandemic was over. This decline is being exacerbated by the global inflation crisis.

The collapse of demand for naphtha will be accompanied by what is likely to be negative demand growth in China in 2022 for the seven big synthetic resins  – high-density polyethylene (HDPE) low-density PE (LDPE), linear-low density PE (LLDPE), polypropylene (PP), polystyrene (PS), polyester fibres and polyvinyl chloride (PVC). This would be an historic first.

Get used to it. This is not a temporary blip. Markets have changed for good.

Editor’s note: This blog post is an opinion piece. The views expressed are those of the author, and do not necessarily represent those of ICIS.


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