Commentary: Falling oil slams Asia

10 May 2017 21:50 Source:ICIS Chemical Business

Petrochemical and polymer prices globally are tracking down, reflecting destocking in Asia. And weaker crude oil prices could push petrochemical prices down further.

The prospect of lower oil prices introduced further nervousness into chemical markets, where price direction in recent weeks has become more uncertain. Production plant outages had helped tighten petrochemical markets globally since November, but early in Q2 2017, markets are becoming looser.

As far as crude is concerned, the price falls looked overdone as early as 8 May, and the rebounds were put down to suggestions that the production cutback agreement between OPEC and non-OPEC Russia would be extended.

There have been comments from both parties to that effect. Crude futures price gains, nevertheless, were muted by the higher rig count in the US.

Saudi Arabia’s minister for energy, Khalid Al-Falih, stressed on 8 May that partners in the production cutbacks would do whatever was necessary to reach their target of bringing crude oil stock levels back to the five-year average. He attributed the most recent crude price falls to low seasonal demand and refinery maintenance.


Chemical markets in Asia are reacting, however, to recent crude price weakness and a slump in demand for intermediates in some value chains. The oil and commodities price weakness fuelled concerns in China that the economy will slow further. Markets are concerned that liquidity and financing issues are also crimping China demand.

The near-term outlook in China remains bearish with many downstream sectors faring poorly in price terms. Downstream, styrene monomer prices were weaker, for example, and margins were under pressure for vinyl chloride monomer (VCM) and monoethylene glycol (MEG).

Producers in China are reported to be considering lowering operating rates. Products such as ethylene oxide (EO) and vinyl acetate monomer (VAM) are under less pressure.

The outlook for polyethylene (PE) in China in May is bearish. The slump in crude oil prices is expected to weigh on market sentiment in the near term. Import trade is expected to remain muted in the lead-up to Chinaplas, a key industry event for the polymers market.

The key issue in early May has been the direction of crude and its impact on commodity prices and market sentiment. Lower petrochemical prices globally helped drive the ICIS Petrochemical Index (IPEX) down 7.6% in April to 255.29 – it fell 4.2% in March. Price falls in April were more widespread than in March, and all three regional IPEX values were lower with northeast Asia leading the way.

Benzene, styrene and polystyrene (PS) prices were down in all three regions, but the falls were steepest for benzene and styrene monomer contracts in the US and northwest Europe.

Ethylene prices rose 6.7% in the US and were flat in northwest Europe but lower in northeast Asia. Propylene prices were down sharply in the US and northeast Asia.

Methanol prices were down 14.5% in northeast Asia and down 10.5% in the US but up 14.2% in northwest Europe.

Butadiene (BD) prices in Asia remained on a rollercoaster with a fall in April of $755/tonne or 36.3%. BD prices in the US were down $375/tonne or 13.5% but unchanged in northwest Europe, the lowest priced region for the C4 molecule.

By Nigel Davis