Key Asia petrochemicals tumble amid US-China trade war concerns

SINGAPORE (ICIS)–Key petrochemicals in Asia have tumbled to multi-year lows in the fourth quarter, with some struggling to stage a rebound as the typical demand lull toward the end of the year is being exacerbated by concerns over the US-China trade war.

Compared with year-ago levels, spot prices of olefins and aromatics posted double-digit declines, while those of polymers have also recorded sharp falls, largely mirroring the movement of upstream crude prices.

KEY CHEMICALS
ICIS Daily Prices	22-Dec-17	21-Dec-18	% change
Benzene (FOB Korea)	851.50	542.5	-36.3
Toluene (FOB Korea)	690.00	531.5	-23.0
Ethylene (CFR NE Asia)	1357.50	925	-31.9
Propylene (CFR NE Asia)	1,020	930	-8.8
Styrene (CFR China)	1,280.00	990	-22.7
POLYMERS
ICIS Weekly Prices	Week ended 22 December 2017	Week ended 21 December 2018	% change
LLDPE CFR China (all origins)	1,150	1,015	-11.7
LLDPE CFR SE Asia  (all origins)	1,195	1,035	-13.4
PP flat yarn CFR China (all origins)	1,130	1,035	-8.4
PP flat yarn CFR SE Asia  (all origins)	1,180	1,070	-9.3

In the case of propylene, prices had been fairly firm in the first 10 months of 2018 due to heavy production losses in Japan and South Korea, before plunging alongside crude amid poor downstream demand and improved supply as turnarounds at regional plants were completed.

Macroeconomic uncertainties largely on account of the US-China trade war, and continued weakness in crude prices amid an oversupply are the major concerns going into 2019.

Crude oil futures have plunged by more than a third from their respective peaks in October, with US prices at their lowest levels in 17 months amid fears of oversupply in the market and a global economic recession.

“In recent weeks, more evidence emerged of the potential negative impact on the global economy from the ongoing US-China trade conflict,” Singapore-based UOB Global Economics & Markets Research said in its latest Commodities Strategy report.

The 90-day trade war truce reached on 1 December between the world’s two economic superpowers has failed to completely dispel uncertainties that depress both the financial and equities markets.

“Global investors and industry players were completely blindsided by the last minute ‘leniency’ from the Trump administration which granted temporary waivers for continued import of Iranian crude oil. The conversation for crude oil suddenly flipped from a potential supply deficit due to the Iran export sanction to the renewed supply overhang due to global growth slowdown,” it said.

The US and China were hoping to reach a mutually beneficial deal that will end the trade spat that saw a total of $360bn worth of goods, including petrochemicals, hit with heavy tariffs over three months from early July 2018.

While positive developments were being reported on the trade talks, it remains highly certain that a deal would be struck within the limited timeframe, which ends 1 March 2019.

The US has a pending threat to impose additional tariffs on $267bn more Chinese goods, on top of its planned increase in tariffs on $200bn worth of imports from China to 25% from 10% which was just delayed and scrapped because of the truce.

In the meantime, the tariffs are insidiously affecting trade flows, as well as overall demand for petrochemicals, slowing down manufacturing activities and will ultimately lead to a slowing down of the global economy.

There is a general consensus that the world economic growth will decelerate in 2019, with strong risks on the downside from a protracted US-China trade war.

The International Monetary Fund has said that the global economy is now expected to grow at a slower rate of 3.7% this year and 2019 — down 0.2 percentage points from an earlier forecast, according to its latest World Economic Outlook report.

The World Bank, on the other hand, is also projecting a deceleration in the pace of expansion in the next two years from 3.1% in bothn 2017 and 2018 as “major central banks remove policy accommodation, and the recovery in commodity exporters matures”.

Amid moderating international trade and tightening global financing conditions, growth in emerging market and developing economies (EMDEs) is projected to plateau, reaching 4.7% in 2019 and 2020, up from 4.5% in 2018, the World Bank said.

“Growing trade tensions between major economies can raise concerns about global growth, trade, and investment prospects, and hence worsen the outlook for demand for a range of commodities,” the World Bank said in its latest Global Monthly report.

“Tariffs may depress bilateral trade, disrupt global supply chains and increase demand for substitutes from other countries,” it said.

The Asian Development Bank said it expects growth in China, the second largest economy is in the world, to be at 6.6% in 2018, moderating to 6.3% next year.

In India, the growth momentum continues on rebounding exports and higher industrial and agricultural output. Growth is predicted at 7.3% in 2018 and 7.6% in 2019.

“Despite challenges brought about by trade conflict, growth forecasts for developing Asia remain unchanged at 6.0% for 2018 and 5.8% for 2019,” the ADB said earlier this month.

Spain-based ForecastEconomics is projecting the global GDP growth to slow to 3.1% from 3.3% in 2018, with Asia’s expansion slowing down to 4.9% from 5.1%.

China’s growth is projected to weaken to 6.3% from 6.6% in 2018, while US expansion is forecast to decelerate to 2.5% from 2.9%, the research firm said.

Photo source: imageBROKER/REX/Shutterstock

Additional reporting by Joson Ng and Melanie Wee