INSIGHT: ICIS price indexes continue extended downtrend on demand concerns

LONDON (ICIS)–ICIS petrochemical indexes started to turn down in mid year, with the NE Asia IPEX taking a lead on coronavirus lockdowns and deepening concern about China’s rate of economic growth.

The groundswell of global uncertainty that took hold in the third quarter clearly shows no sign of abating, as the latest indexes show, with steep month on month falls for the regional and global IPEXs in October.

The time it has taken for some commodity petrochemical contract prices to settle for October underscores the difficulty buyers and sellers are having coming to agreement as demand remains weak and feedstock and energy costs remain high and volatile, although falling from earlier peaks.

Markets are depressed by weaker demand growth as inflation takes hold globally, the situation underscored by the energy crisis created by the conflict in Ukraine.

Significant shifts in energy supply and demand have destabilised costs for energy-intensive industries such as chemicals.

The disturbing outlook in Europe, not simply on costs but on natural gas and electricity availability through the winter months, adds a further layer of uncertainty to an already highly complex situation.

Some supply in Europe is expected to come back on stream to service a slight uptick in demand as the year end approaches. It does not seem to be so much a question of running costly inventories down but of maintaining them at an adequate level to meet the demand there is.

However, in China demand remains crimped by the country’s strict COVID-19 policy. The policy is also lowering demand for crude oil and helping to drive down crude prices. Lower crude costs have fed through into petrochemical prices and helped drive the ICIS price indexes lower in recent weeks.

The weekly spot IPEX, a set of indexes created for the same commodities as the monthly indexes but with similar but weekly price points, has been falling steadily since mid year with little uptick, apart from fleetingly in Europe.

It fell 2.3% at the global level last week with across the board declines for the regional IPEXs. The northeast Asia index was down by 3% on the back of lower polyvinyl chloride (PVC) and benzene values. The northwest Europe weekly index fell by under 1.0% while the US Gulf index was down on lower methanol and polypropylene prices.

Encompassing price points for 12 commodity petrochemicals and plastics the indexes do not always move in concert like this and rarely over such an extended period.

Petrochemical and plastics producers have reined back capacity to try to balance output with demand and can expect a challenging year end and start to 2023 as demand is expected to remain weak.

Producers have been reporting lower volume demand in Q3 results and while outlooks for financial performance for the full year are not severely depressed, profits will rely on a relatively strong first half. The difficulties encountered in the third quarter are not easing with macroeconomic concerns the most telling in the challenging energy environment.

Insight by Nigel Davis