Asia petchem markets await China’s demand signals after holiday

SINGAPORE (ICIS)–Asia’s petrochemical markets will closely watch China’s demand signals after the Lunar New Year holiday amid ongoing concerns about the country’s economic health.

• Asia markets eye China’s post-holiday demand signals
• China’s economic health remains central concern
• Prices likely to rise amid supply constraints

Markets in Asia took a breather in the week of 12-16 February, with Lunar New Year holidays in China, Taiwan, Malaysia and Singapore, while countries such as South Korea, Japan and Indonesia observed public holidays as well.

Market participants are cautious about the post-holiday market; while some downstream buyers will restock after the holidays, there is concern that existing inventory held by domestic China producers and distributors will largely satisfy demand until early March.

PRICES LIKELY TO RISE AMID SUPPLY CONSTRAINTS
Petrochemical prices in Asia are expected to continue to increase in February, supported by capacity losses from outages and run-rate reductions, according to ICIS analysts.

Among the 31 major petrochemical commodities covered by the ICIS Asia Price Forecast, average February prices for at least 22 of these commodities are anticipated to increase.

Ethylene (C2), butadiene (BD) and styrene butadiene rubber (SBR) are expected to lead in terms of gains.

In Asia’s C2 market, end-users who have yet to settle March arrival cargo are expected to hit the ground running once most of players return to the market this week.

In the southeast Asia C2 market, demand enquiries were largely heard from Thailand last week, while other end-users in Indonesia have begun to look towards the April window for spot cargo.

“The Asia C2 industry is likely to be characterised by tight supply in the weeks to come,” said Paolo Scafetta, ICIS senior olefins analyst.

“February should see about 7% of total monthly nameplate capacity lost due to downtime unless unplanned events cause further technical hiccups.”

The upstream naphtha market in Asia should be influenced by a few bearish factors, Scafetta added.

These include the shift from naphtha to liquefied petroleum gas (LPG) as an alternative cracking feedstock and an improvement in supply from March as naphtha cargoes are expected to increase as Middle East refineries return from their maintenance.

Asia’s naphtha market is likely to be plagued with volatility in the short term as tensions in the Red Sea will continue to disrupt supplies.

In Asia’s propylene (C3) market, trade was largely subdued during the Lunar New Year break but picked up towards the close of the week with most market players, except China, returning from their holiday.

Talks and discussions in Taiwan commenced at the end of the week after the holidays ended.

However, the post-holiday buying sentiment weakened on the back of ample supply, leading sellers to progressively lower their offers and selling indications.

With buyers in China largely away from the market, overall business activity during the week was muted.

In southeast Asia, while demand was also heard in Malaysia and Indonesia, most buyers continued to hold back from purchases on the expectation that supply tightness might result in an easing in offers down the road.

In Asia’s benzene market, post-holiday restocking is expected to pick up in the second half of February amid strong competition for April and May cargoes from global players.

February and March benzene cargoes have been already sold out and April cargoes are in strong demand.

Benzene buyers based in both Asia and the West had actively sought procurement since end-January, for pre-holiday and pre-summer stocking up respectively.

Asia’s acetone market looks poised to maintain its strength.

This is due to the high prices of benzene, reduced production leading to tighter supply, and a resurgence in trading flows between Asia and the West.

A significant increase in demand for Asia acetone from the US market is bolstering this trend.

Limited supply in the US, a result of low phenol production and ongoing allocations, is driving this demand.

Meanwhile, supply within Asia is also constrained as phenol/acetone producers scale back production in response to unprofitable margins and decreased demand for phenol in China.

In the xylene markets, further support in the market will be dependent on downstream sectors after the Lunar New Year holidays, with eyes firmly on China.

For paraxylene (PX), there remains optimism for gasoline-blending demand heading into the second quarter, with positive arbitrage window economics for exports to the West.

Firm upstream naphtha prices have also provided some support for PX.

Several market participants noted there had been pre-buying of mixed xylenes (MX) and toluene by gasoline blenders to the US.

Demand and price developments in the downstream purified terephthalic acid (PTA) and polyester sectors will help provide clarity about whether high PX costs can be absorbed down the chain.

Asia’s butyl acetate (butac) and ethyl acetate (etac) markets are poised to stay afloat on anticipated post-holiday demand, albeit at a gradual pace.

Sellers of butac in both China and the region largely maintained their spot offers for March loading prior to the Lunar New Year holiday.

Spot butac prices were on a downtrend in the early part of the fourth quarter of 2023 and have climbed since December, in part driven by cost pressures upstream as suppliers worked towards mitigating compressed margins.

Asia’s methylene chloride (MEC) market might be bullish after the Lunar New Year holiday, as rising demand is likely to shift the market to a more balanced state.

Most buyers were in a wait-and-see mode, monitoring prices and observing what producers would offer after the Lunar New Year break, with market participants in southeast Asia eyeing a rebound in demand through Q2, around the Ramadan period.

CHINA’S ECONOMIC HEALTH IN FOCUS
ICIS analysts expect most of China’s end-use consumption, including in industries such as agriculture and home appliances, to recover from March.

The China government’s Two Sessions policy meetings, widely seen as the most important political meeting of the year for the country, will be held on 4-11 March.

ICIS analysts expect another series of policies to be introduced to stimulate economic growth.

Further market and infrastructure investment can boost petrochemicals demand.

Latest official data from China is pointing to some recovery from domestic tourism trips and revenues.

Domestic tourism trips and revenues during the Lunar New Year holidays in China jumped by 34.3% and 47.3% year on year respectively, with their levels at 19.0% and 7.7% above pre-pandemic levels in 2019, data from the country’s Ministry of Culture and Tourism (MCT) shows.

“Most official and private media channels have been reporting strong (or even exceptionally strong) Lunar New Year holiday consumption data, and markets risk getting caught up in the euphoria of the moment, under the supposition that China’s economy is suddenly bottoming out, driven by the Chinese people’s hidden passion for spending,” research analysts from Japan’s Nomura Global Markets Research said in a note.

“Although we do see some strength in the data, we urge market participants to exercise caution,” it said, adding that China’s property sector continued its downward spiral, right before the Lunar New Year holiday, and there was no sign of a recovery during the holiday.

“Despite the positive [Lunar New Year] data, we maintain our view that the ongoing economic dip is likely to worsen into the spring,” Nomura said.

With additional reporting by Josh Quah, Julia Tan, Seng Li Peng, Angeline Soh, Helen Lee, Keven Zhang, Melanie Wee and Samuel Wong

Focus article by Nurluqman Suratman

Thumbnail photo: Lunar New Year lanterns in Shenyang, northeast China’s Liaoning Province, on 1 February 2021. Asia will closely watch China’s demand signals after the Lunar New Year holiday amid concerns about the country’s economic health. (Source: Xinhua/Shutterstock)