China petrochemical futures track crude gains on upbeat March factory data

Fanny Zhang

01-Apr-2024

SINGAPORE (ICIS)–China’s petrochemical futures markets were tracking gains in crude prices on Monday, with Brent trading at above $87/bbl, on bullish sentiment following a return of the world’s second-biggest economy into manufacturing expansion mode.

  • Official, Caixin March manufacturing PMIs at above 50
  • China methanol, SM futures prices lead gains
  • External demand picking up for selected goods

At the close of morning trade, futures prices of major petrochemicals in Chinese commodity exchanges were up by 0.2% to 1.7%.

China petrochemical futures markets Prices as of 03:30 GMT (CNY/tonne) % change vs 29 March
Linear low density polyethylene (LLDPE) 8,279 0.60%
Polyvinyl chloride (PVC) 5,803 0.20%
Ethylene glycol (EG) 4,499 0.50%
Polypropylene (PP) 7,542 0.80%
Styrene monomer (SM) 9,451 1.40%
Paraxylene* 8,534 0.70%
Purified terephthalic acid (PTA) * 6,016 1.30%
Methanol* 2,518 1.70%

Sources: Dalian Commodity Exchange, *Zhengzhou Commodity Exchange

At midday, Brent crude was up 30 cents at $87.30/bbl, while US crude gained 31 cents at $83.48/bbl.

Crude futures were also supported by expectations of tighter supply amid output cuts by OPEC and its allies, which include Russia.

Manufacturing activity in China expanded for the first time in six months, based on official data in March, generating a purchasing managers’ index (PMI) reading of 50.8, as companies accelerated production following the Lunar New Year holiday in the previous month.

A separate reading by Chinese media group Caixin was more upbeat, with a higher March PMI reading of 51.1, the highest recorded since February 2023. In Caixin’s data, factory output continued to expand for the fifth straight month.

The Caixin PMI surveys small and medium-sized enterprises (SMEs) and export-oriented enterprises located in eastern coastal regions, while the official PMI is tilted toward larger state-owned enterprises.

A reading above 50 indicates expansion, while a reading below denotes contraction.

“Both supply and demand expanded at a faster pace amid the market upturn. In March, growth in manufacturers’ output and total new orders accelerated, with the former hitting a 10-month high,” Caixin Insight Group senior economist Wang Zhe said.

“External demand also picked up pace thanks to the recovery in the global economy, pushing the gauge for new export orders to its highest level since February 2023,” the economist added.

“Overall, the manufacturing sector continued to improve in March, with expansion in supply and demand accelerating, and overseas demand picking up,” Wang said.

“Manufacturers increased purchases and raw material inventories amid continued improvement in business optimism. However, employment remained in contraction and a depressed price level worsened,” Wang added

Besides the seasonal effect, firming overseas demand also helped to push up Chinese factory activities, local brokerage Haitong Securities wrote in a note, citing that furniture, transportation equipment and electronics were enjoying strong demand.

China is projected to post around a 5% GDP growth this year, slower than the 5.2% pace recorded in 2023, with a slumping property sector posing a major drag on overall economic prospects.

Property and other related sectors account for about a fifth of China’s GDP.

While the property slump may persist, other sectors such as electric vehicles, new energy and digital economy are posting healthy growth, said Zhang Junfeng, senior analyst at Shenzhen-based brokerage China Merchant Securities.

Focus article by Fanny Zhang

($1 = CNY7.23)

Additional reporting by Nurluqman Suratman

Thumbnail image: At Lianyungang Port in east China’s Jiangsu Province, 26 March 2024. (Shutterstock)

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