Asia petrochemicals outlook, w/c Feb 24

The spread of the coronavirus is the major factor affecting Asian petrochemical markets, especially with the number of cases in key petrochemical market South Korea, jumping to more than 700 over the weekend.

The development in South Korea, China and other Asian countries will likely set the tone for the swing in crude oil values and commodity prices.

AROMATICS

This week, buyers and sellers of Asian paraxylene will start negotiations for the March Asian Contract Price, which has not settled since September last year. However, market sentiment is expected to remain bearish amid limited upside, with market participants continuing to monitor developments in China as logistical difficulties and port congestion could lead to builds in downstream inventories. Market sources have raised concerns of rising PX stockpiles and the possibility of cuts in operating rates as demand wanes.

China's inventory of mixed xylene has risen sharply in recent weeks to around 90,000 mt last week, and should inventories continue to rise, it may dampen China's import demand for MX.

Meanwhile, US MX prices remain firm and could support Asian prices as arbitrage shipments have been fixed, a market source said.

Demand in the Asian toluene market is expected to fizzle out this week as gasoline-blending activity hits a snag given ample gasoline stocks in the region. Within Asia, gasoline barrels ballooned as refiners in China offered more spot cargoes. Several Chinese refiners including CNOOC, Wepec and independent refiner Hongrun International Energy had offered up to a 187,000 mt of spot gasoline for mid to late-March, more than double the 76,000 mt offered in February, according to open tenders seen by S&P Global Platts. With slower refinery run rates in China and excess supplies in the region, the Asian toluene market would see competition within the blendstocks sector.

Availability of spot benzene is not expected to be ample this week, with many producers having scheduled plant maintenance in March and April, resulting in an increase in the spot price of material loading over the period.

However, another market participant said Friday that with demand from global demand centers slow, traders may end up with excess supplies for re-sale on an FOB basis, as CFR demand is thin.

Benchmark FOB Korea benzene closed the week $18/mt higher compared with a week ago, at $676.33/mt.

INTERMEDIATES

Asian methanol prices are expected to come under downward pressure this week with Zagros Petrochemical Company restarting its 1.65 million mt/year No.2 methanol plant Monday, and Petronas Chemicals Marketing Limited's two methanol plants running stably at full capacity last week, after a series of stops-and-starts.

Meanwhile, downstream Chinese demand for semi-finished products from Southeast and Northeast Asia used in the manufacture and assembly of finished consumer goods, continued to be impacted by the coronavirus outbreak. CFR China and Southeast Asian methanol prices on Friday edged down $1/mt to $227/mt and $253/mt, respectively, from Thursday.

CFR Far East Asia acrylonitrile slumped to more than a three-year low at $1,330/mt last week as the ongoing spread of coronavirus across Asia shattered market confidence

Asia's major Acrylonitrile butadiene styrene , or ABS, producer Chi Mei Corp plans to reduce ABS output at its 1.35 million mt/year ABS plant at Tainan, southern Taiwan, to 10,000 mt due to lackluster demand amid the spread of the coronavirus in China. The Chinese government's transport controls to limit the spread of the coronavirus, was making it difficult for ABS sellers to transport their seaborne cargoes to their downstream customers in China. The company has already reduced its operating rate at the Tainan plant in February and is now planning for a deeper cut for March.

A major producer in Asia said that acrylonitrile may hit $1,250/mt before it stabilizes.

OLEFINS

The propylene market is expected to hit the $800/mt CFR China mark as the return of more Chinese buyers will support spot prices. Last week, the Asian propylene market swung into recovery mode as the return of Chinese buyers lifted indicative bids and offer. Some buyers from eastern China have noted that part of the transport ban has eased and more downstream polypropylene plants have increased their operating rates, spurring demand for propylene feedstock. Platts CFR China marker moved up $15/mt and reached $785/mt last Friday.

Meanwhile, the Northeast Asian ethylene spot market is expected to be ready for a rebound this week, as the current ethylene/naphtha spread is below the breakeven level. Producers in the region are holding back from selling spot cargoes and mulling over cuts in operating rates. On the other hand, the Southeast Asia spot market is expected to have few transactions as most buyers and sellers are relying on term contracts.

POLYMERS

Asian market sources welcomed China's State Council's announcement of plans to start accepting applications next month for tariff exemptions on some US-origin petrochemicals, including types of high density polyethylene, as this would result in more suppliers. But some traders cited concerns that more incoming supply could further depress a market already pressured by coronavirus-related shutdowns and logistical snarls.

The tariffs were not officially canceled, but could be lifted for Chinese import companies that meet certain criteria.The move could be a potential boon for US suppliers, who have faced additional 30% tariffs on high-density polyethylene, or HDPE. The 6.5% import duty that existed on all origins of polyethylene are expected to remain in place if exemptions to additional tariffs are granted.

The impact on polypropylene prices, in view of the current high inventories in China and depressed prices as a result of the coronavirus outbreak, however, led to increased cautiousness among some traders. Although there were no official inventory statistics, one trader estimated it could be as high as 1.5 million mt. Market sources expect prices to be stable to slightly weak in the coming week.