Analysis: India's petrochemical demand, prices under pressure from COVID-19 crisis

India's petrochemical prices are under pressure as a sharp resurgence in COVID-19 cases and mobility restrictions across the country reduce demand from key downstream sectors.

Supply chain disruptions and demand contraction have so far resulted in delivery delays, cancellations and even re-exports, as players look to adjust portfolios.

The container shortage in Asia is making optimization efforts more difficult, with shipping sources saying the ripple effects of the six-day blockage in the Suez Canal in March could be felt across global networks through year-end.

India's domestic production has not been hit as hard, as policy makers are focusing on micro containment zones -- such as localized restrictions and night curfews -- rather than a nationwide lockdown like the one that brought industry to a grinding halt during the first COVID-19 wave in 2020.

India, one of the world's largest petrochemical importers, has recorded more than two million COVID-19 infections in the last seven days, the highest by any country since the pandemic began.

Related factbox: India's COVID-19 resurgence clouds energy, metals and agriculture outlook

Demand shock prompts re-exports, diversions

Traders in India are looking to re-export toluene cargoes out of India to China, Southeast Asia and even the US amid muted domestic demand, a trader said.

"India's demand has collapsed due to COVID-19," the trader said, adding that up to 10,000-15,000 mt of toluene was being offered out of India.

Toluene inventory drawdown continues, albeit slowly, as fewer arrivals have been scheduled in anticipation of weaker demand continuing. But prices are under pressure, with offers at $60/mt above FOB Korea toluene prices considered high, two local market sources said.

Slow demand and high inventories were also seen in India's styrene market at a time when demand typically peaks, and in methanol, where importers are holding on to stocks to avoid selling at a loss.

In the phthalic anhydride market, participants with exposure to India's slowing demand and high inventories are approaching producers seeking to reduce monthly offtake obligations, market sources said.

"PA demand is very weak because of the serious situation in India," an Asian PA supplier said, adding that sellers were striving to divert volumes to other parts of Asia.

"We usually sell 3,000-4,000 mt of PA to Indian spot buyers every month, but now we are looking at about 1,000 mt given the COVID-19 situation. We have to look for other buyers to take up the rest of 2,000-3,000 mt every month," an Asian producer said.

CFR India prices under pressure

Petrochemical spot prices for delivery to India have fallen in the last week of April.

An acrylonitrile producer said the possibility that downstream factories and ports may be forced to close or reduce operations was adding further bearishness.

Platts Asia polypropylene assessments for dollar-denominated cargoes have fallen $30/mt in the week as India demand takes a hit and China's May demand expectations have failed to materialize.

Polyethylene market sources expect Indian buyers to dip into their inventories before making fresh purchases, although they expect consumption to resume when the situation improves.

"There will be a dip of 10% or so, but we will not see a drastic demand reduction. It will bounce back as PE goes into essential goods," a market source said.

In the polyester chain, India's PTA spot prices were also under pressure, with several buyers requesting spot cargo deferrals.

There have been cancelation requests as well, but not on a large scale so far, PTA market sources said.

Run rates across most Indian polyester producers have dropped by 25%-30% to around 50%, two polyester producers in India said.