Asia petrochemicals under pressure from China oversupply, US trade risks

SINGAPORE (ICIS)–Sentiment in Asia’s petrochemical markets remains cautious with prices of some products – particularly in the southeastern region – were rising on tight supply, amid escalating trade tensions between the US and its major trading partners, including China.

• China’s oversupply-driven exports weigh on markets; post-Lunar New Year demand weaker than expected
• US tariff fears cause jitters across downstream industries
• Methanol supply constraints persist

TRADES REMAIN SUBDUED
Market activity in key chemical segments remains muted as buyers were staying on the sidelines, waiting for clarity on US trade policies and overall demand recovery.

In the benzene market, South Korea’s January exports to the US slumped by 81% year on year to 15,000 tonnes, according to ICIS data.

The decline was attributed to increased European supply to the US.

“The market is cautious as everyone is waiting for more clarity on US tariff policies,” a trader said.

South Korea faces potential hefty tariffs under the US’ plan to impose reciprocal tariffs from 2 April, even though the two countries have an existing free trade agreement.

In the caprolactam (capro) market, producers are grappling with poor margins while supply within China continues to grow.

“Capro margins have been bad for six months now, and demand didn’t pick up post-Lunar New Year,” said a Chinese producer.

Chinese producers were exporting more to southeast Asia and Europe, in view of a general oversupply of petrochemicals and muted demand in the domestic market and following the US’ new 20% tariffs on all Chinese goods.

For polypropylene (PP), China has ramped up exports to Vietnam and other southeast Asian nations which were exerting downward pressure on prices.

With more Chinese capacity coming online, this trade flow is likely to continue.

Chinese producers are increasingly willing to accept lower margins to capture market share in the polyolefin markets, creating ripple effects across Asia and beyond, forcing regional producers to adjust pricing strategies to remain competitive.

However, these actions could be met with antidumping duties (ADD) as southeast Asian governments act to protect domestic producers.

SHIPPING SECTOR WARY OF US POLICIES
US protectionism is on the rise again under President Donald Trump’s administration, with an ongoing probe being conducted on China’s shipbuilding industry, which may be slapped with potential duties of up to $1.5 million per vessel.

This move aims to deter reliance on Chinese-built ships and, instead, encourage investment in the US shipbuilding sector.

China dominates the global shipbuilding industry, with over 81% of new tankers being built in the country, according to shipbroker Xclusiv in a November report.

The fear is that if these tariffs come through, immediate cost impacts will be felt, especially on long-haul trades.

Meanwhile, weaker freight demand post-Lunar New Year has also softened freight rates.

Most downstream producers in China resumed operations in H2 February, after an extended holiday break. China was on official holiday from 28 January to 4 February.

The northeast Asia winter was milder than expected, which reduced seasonal trade flows.

DISRUPTIONS TIGHTEN SUPPLY
While some chemical markets struggle with oversupply, others are experiencing tight supply due to plant outages.

For methanol, supply is constrained in Malaysia, with Petronas’ unit experiencing operational issues, and Sarawak Petchem’s unit shut from late January.

Iranian methanol plants have also been offline due to winter gas shortages, pushing Indian import prices up by $60/tonne within a week.

Meanwhile, Russian supply disruptions due to drone attacks have tightened naphtha availability, strengthening prices.

On the acetic acid front, plant turnarounds in China, Malaysia, and Japan initially tightened supply, but these units have since restarted, thereby improving availability of the material.

OUTLOOK MIXED
Market players remain wary of near-term price movements as supply and demand fundamentals shift across regions.

March shipments for PE and PP in southeast Asia have largely been sold out, while Indonesian buyers are reluctant to commit to April purchases amid the Muslim fasting month of Ramadan, which started 1 March.

Ramadan is observed in most parts of southeast Asia including Indonesia, southeast Asia’s biggest economy with a predominantly Muslim population.

With uncertainties surrounding US’ trade policies, Chinese exports, and geopolitical risks, market sentiment remains mixed.

Players are closely monitoring tariff developments and the potential impacts of further supply disruptions in key markets.

Focus article by Jonathan Yee

Additional reporting from Seng Li Peng, Isaac Tan, Tan Hwee Hwee, Angeline Soh, Jasmine Khoo, Julia Tan, Josh Quah, Damini Dabholkar, Doris He, Jackie Wong

Thumbnail image: At Qingdao Port in Shandong province, China on 6 March 2025. (Costfoto/NurPhoto/Shutterstock)