Asia petrochemicals outlook, w/c Feb 17

The Asian petrochemicals demand was seen staying subdued going forward, weighed down by an inventory buildup in key China market and logistic issues brought to the fore by the coronavirus epidemic.

Ethylene

Ethylene trade in Northeast Asia is expected to taper this week while demand in China remained weak as a result of the coronavirus outbreak. Spot cargo availability is also limited amid sluggish production as a handful of South Korean operators mull production cuts, in view of poor cracker and derivatives margins in northeast Asia.

In Southeast Asia, buying appetite was also expected to slowdown from major downstream sectors given the poor downstream margins. Nonetheless, support for prices may come from cracker turnarounds in the region.

Polyethylene

Some end-users expect weakened PE demand to persist in the Northeast and Southeast Asian markets as a result of the coronavirus outbreak, leading to increase downward pressure on buying appetite.

Production cuts in the Middle East and Southeast Asia are expected to reduce supply to Asia, though buyers remained cautious given the uncertain demand outlook in the wake of the coronavirus outbreak.

Propylene

Propylene outlook in China remained bearish this week, according to market participants, as travel curbs extending across East China have resulted in severe logistical complications and such conditions will likely curb demand in the week ahead.

Propylene and downstream production is also expected to be impacted, with a major producer in East China saying that many workers were heard to have received instructions from their companies to only resume work from end-February onwards.

Major producer SK Advanced is planning to delay the restart of its 600,000 mt/year propane dehydrogenation plant at Ulsan, South Korea from early March to mid-March. The plant was shut January 28 for a 30-day turnaround.

Polypropylene

PP demand in northeast and southeast Asia is expected to remain curtailed by the coronavirus outbreak. South Asian supply may remain snug as Pakistan, Bangladesh, Sri Lanka achieved premiums of $20-$40/mt over the benchmarked Indian pricing in the earlier week.

Logistics is also expected to be an issue with some ship-owners looking to avoid China ports on the back of concerns over the coronavirus and the current port congestion at China main ports.

Some Chinese traders were also heard to be diverting cargo to other countries instead of China while several PP producers have shut production, resulting in more than 1 million mt/year of capacity taken offline.

Toluene

A lack of trade momentum in the Asian toluene market would likely extend further through the week, in view of the coronavirus outbreak in China, which stifled gasoline-blending activities and subsequently throwing the Chinese domestic toluene market into disarray.

With an eye on expected Northeast Asian refineries turnarounds in March, toluene participants in the Far East are hinging on arbitrage opportunities to send barrels from Northeast Asia to US Gulf Coast, as well as demand-stable India.

Isomer-grade Mixed Xylenes

Arbitrage opportunities opened up from Asia to US after recent losses in Asian markets, with some cargoes already booked for voyages, giving some respite to the weighed demand in China, according to market sources.

A traditional uptick in seasonal demand from the Northern Hemisphere for gasoline in April may also lend some support, as spot trade activity move further into the April laycan this week.

Meanwhile, paraxylenes margins will remain as an important price driver for isomer MX.

Paraxylenes

Short-term market outlook for paraxylene is set to remain bearish given limited upside due to weak fundamentals and pending concerns over the coronavirus outbreak.

Price movements in related markets and the situation in China are expected to be closely monitored by participants given the fluidity in market conditions under such circumstances.

Buying interest remained slow, despite slight rebound in prices in the previous week, amid a build-up in downstream purified terephthalic acid inventories.

Vessel congestion at the Chinese ports, the lack of inland transportation and weak downstream demand have resulted in a rise of inventories across petrochemical products, industry sources noted.

Fibre Intermediates

Demand from the Chinese textile sector is expected to see slight improvement in the week with some Chinese production facilities gradually resuming operations after an extended Lunar New Year holiday.

Full operations, however, would only be achieved in first-half of March at the earliest amid uncertainties surrounding the COVID-19 outbreak, market sources opined.

As such, polyester and fibre intermediates producers are likely to continue facing high inventory pressure despite possible slight recovery to demand.

Under such circumstance, it can be expected for trade participants from intermediates markets such as purified terephthalic acid and monoethylene glycols, to maintain a wait-and-see approach, in view of the lack of clarity over market conditions.

Methanol

Asian methanol demand is expected to come under pressure in the week, as the coronavirus dampens downstream buying appetite. The restart of two Iranian methanol plants, albeit at low production rates, after natural gas supply was restored over the weekend, could further weigh on imported Chinese methanol prices.

Demand-supply balance in Southeast Asia in H1 March, meanwhile, appeared to be long. Cargo offtake speed from tanks by end-users were subsequently slowing down given tepid downstream demand.