ASIA: The week in petrochemicals

The Asian petrochemical market is likely to be weighed down by demand concerns in the wake of coronavirus outbreak in China.

Trading in some markets is expected to remain thin as a majority of participants are yet to return from their Lunar New Year break.

Aromatics

Benzene: Asian benzene picked up last Friday, yet uncertainty around how demand would shape up after the Chinese market re-opens this week continued to weigh. The extended Lunar New Year holiday in China following the outbreak of the Wuhan coronavirus is expected to keep operating rates at downstream plants low for a longer period of time, which could affect procurement volumes from end-users.

Other than that, market participants expect shipment delays, and potential land transport cancellations, as well as slower processing of documentation at customs offices over the next few weeks.

Paraxylene: The downtrend seen in Asian paraxylene is likely to persist as sentiments remained bearish following the coronavirus outbreak and amid limited price support. While the market has been closely tracking upstream crude futures and naphtha, focus will also be on downstream purified terephthalic acid as the Chinese market returns this week. Sources expect further weakness in paraxylene on PTA prices are seen lower due to muted buying appetite. It might be tough for PX prices to recover in the short-term without any sustainable support to the fundamentals and the overall market sentiment, said an industry source.

Styrene: Asian styrene started off the week on a sluggish note on the back of bearish outlook and dampening demand after the Lunar New Year. Some downstream producers in China have extended their returns following the outbreak of coronavirus and lockdown across cities, which could shrink demand for styrene. Despite the slated turnarounds and run cuts in February across Asia, factors such as an inventory build in east China and two new capacities coming online in the country would further weigh on the styrene market.

Toluene: The Asian toluene market is bracing for more weakness in the near term as coronavirus outbreak in China worsens, prompting a sell-off in the global equity market. Trade flows of toluene across the region took an abrupt pause as focus was on the impact of coronavirus on the demand in China and across the region. Vessel flows into China have started to slow down and crew members have to undergo stringent health checks at major ports in the Far East.

Olefins

The Asia ethylene market in northeast Asia is likely to remain thin this week. The fall in upstream naphtha prices and weak demand in China due to the outbreak of coronavirus weighed on ethylene prices. According to an industry source, the market would also continue to monitor progress on Hengli Petrochemical's steam cracker unit that started last week. The cracker can produce 1.5 million of ethylene per year.

Demand is seen sluggish this week along the whole polyester chain, including monoethylene glycol and purified terephthalic acid, amid virus outbreak, sources said. The operating rate of the downstream Chinese textile sector, which is labor intensive, could not resume as quickly as expected after China extended the Lunar New Year break in order to contact the virus. Weak sentiment has pressurized both the MEG and PTA futures market, with the most traded May futures contracts for both MEG and PTA hitting their lowest daily trading limit in early Monday morning.

Polymer

Asia's polypropylene was snug due to plant turnarounds in the Middle East and India. Some producers had cut operating rates seeing higher feedstock propylene prices, but converters have held back purchases, hoping the market would retreat post-Lunar New Year holidays as demand outlook remained weak in the wake of coronavirus outbreak. Demand for medical-use polymers, such as medical-use PVC, linear low density polyethylene, non-woven polypropylene and rubber latex was expected to increase due to the outbreak, market sources said.

Asian LLDPE prices edged higher on the week, supported by tightened supply in the Middle East and Northeast Asia, as well as an uptick in demand in the South Asian markets. However, some end-users expect the market to fall in Northeast and Southeast Asia when it reopens this week, on the back of a sluggish economy following the virus outbreak and the US-China trade tariffs.

The Asian propylene market is likely to lose further traction this week, as the spread of coronavirus led to bearish outlook for the downstream polypropylene market and dented buying interest. Taiwanese propylene buyers have received offers for prompt arriving China-bound cargoes from international trading houses last week as Chinese buyers were heard facing mounting challenges in receiving the import cargoes at the ports due to the extension of Lunar New Year holidays. A Chinese propylene producer said the operating rate of the downstream plants is expected to be low due to the shortage of manpower and this will reduce demand for propylene imports.

Intermediates

Trading activity in the Chinese methanol market this week is expected to be thin, with most parts of the country and logistics were under lockdown to contain the coronavirus. Spot ex-tank prices in east China plunged Yuan 170/mt in morning trade to around Yuan 2,190/mt ($312/mt). Discussions were sparse Monday as a number of market participants were on the sidelines. While sentiment is currently bearish, supply fundamentals in China are tight following a number of unplanned plant outages from suppliers in Iran, the Middle East and Malaysia. The CFR China methanol price was assessed at $240/mt on Friday, down $13/mt on the day.