APIC ’17: Asia petchem market downtrend persists on poor demand

SINGAPORE (ICIS)–Spot prices of major petrochemicals products in Asia have been on a downtrend since April amid slumping crude oil prices and poor downstream demand in the region, particularly in the key China market.

Petrochemical feedstock naphtha closed at $453.50/tonne CFR (cost and freight) Japan on Tuesday, down from the average of $491.75/tonne CFR Japan around the same time last month, according to ICIS data.

But some demand in South Korea, combined with expectations of reduced inflows of arbitrage cargoes from the West in May, helped buoy up prices this week, following heavy losses in the previous week.

Asia relies mostly on naphtha as feedstock for petrochemical production.

Petrochemical industry players are convening in Sapporo, Japan on 18-19 May for the 38th Asian Petrochemical Industry Conference (APIC), with the theme “The Promise of Carbon Chemistry: Pathway to a Sustainable Future”.

APIC has attracted more than 1,200 delegates from across the world, according to conference organiser Japan Petrochemical Industry Association (JPCA).

In the upstream crude market, Brent crude futures settled on Tuesday at $51.65/bbl, with US crude futures at $48.66/bbl.

Crude prices had fallen in early May to their lowest level since November 2016 – before the OPEC-led output cuts – on lingering concerns about growing shale oil production in the US, even as OPEC and non-OPEC members have been keeping to their output cut commitments.

Price movements in the Asian aromatics markets are heavily influenced by crude prices, in particular, benzene and styrene monomer (SM).

Benzene prices were at $757-764/tonne FOB (free on board) Korea at the close of trade on Tuesday, down from $816-863/tonne FOB Korea four weeks ago, according to ICIS data.

Demand for the aromatics has remained lacklustre since late April. A few buyers from the caprolactam sector procured cargoes when prices fell sharply, while buyers from other derivative sectors, namely, SM and methyl di-p-phenylene isocyanate (MDI) have largely opted to stay on the sidelines amid a heavy turnaround season for these plants in April and May.

In the toluene market, prices were at $615-640/tonne FOB Korea on Tuesday, with sentiment bearish amid persistent weakness in demand in the key markets of China and India.

In China, toluene offtakes from both gasoline blenders and chemical downstream end-users were weaker than expected amid the presence of other more competitively-priced blendstocks and lower average run rates at toluene di-isocyanate (TDI), benzoic acid and benzyl chloride plants.

“In addition to stable-to-soft demand, there are new capacities expected to enter the market in second-half June and no one can find a bullish factor in the market yet,” an east China-based trader said.

Potential production cuts at downstream toluene disproportionation (TDP) units in northeast Asia – because of squeezed margins amid a narrower benzene-toluene and isomer xylenes-toluene spread – also present a major concern for market players.

The regional toluene market may find a reprieve if upstream crude and naphtha prices remained stable, market sources said.

“Looking at the historical prices, the toluene-naphtha spread has not fallen below $140/tonne since the third quarter of 2015 so there is a potential chance that prices are very close to bottoming out from this trading perspective,” one southeast Asia-based trader said.

In the paraxylene (PX) market, prices have been weighed down by excess spot cargoes amid shutdowns at downstream plants.

On 12 May, spot PX prices were assessed at $800-802/tonne CFR Taiwan and CFR CMP (China Main Ports), down by about $50/tonne from a month ago, according to ICIS data.

Prices are under pressure with fresh supply coming from India, where Reliance Industries’ new 2.25m tonne/year PX unit in Jamnagar has started loading cargoes since end-April – both contractual and spot volumes – to China and southeast Asia.

Regional PX prices are not expected to see any significant upswing from demand, and typically take the cue from upstream crude oil and naphtha markets.

In the olefins market, ethylene prices in northeast Asia are weighed down by weak downstream conditions and expectations of increased regional supply in the coming months.

Market players have a bleak outlook on Chinese downstream markets given prevailing tight credit conditions. Production cuts at stand-alone plants could become more prevalent if sales and margins failed to improve.

Propylene prices may come under pressure despite recent gains, with downstream polypropylene (PP) producers still reeling from weak sales and high inventory levels.

In the methanol market, the outlook is bearish for the rest of May as buyers have ample supply, resulting in thin spot demand for the material.

Focus article by Nurluqman Suratman

Additional reporting by Melanie Wee, Daphne Ho, Trixie Yap, Yeow Pei Lin, Joson Ng, Kite Chong and Paul Lim

Picture: Sapporo, Japan. (Lehtikuva OY/REX/Shutterstock)