Analysis: Festive season adds to Indian petrochemicals sector recovery as economic activities resume

An Indian petrochemicals sector recovery, post reopening of the economy from COVID-19 lockdowns, has received a boost from festive demand and the offset of seasonal monsoons.

Products like polypropylene, polyethylene, solvent-MX, acetic acid, vinyl acetate monomer, acrylonitrile, and styrene have seen an uptick in demand from July onward as economic activities resumed, and further in September, owing mainly to the start of festive season and the end of monsoons.

Festival demand in India usually starts around mid-August and ends with Diwali, which falls on Nov. 14 this year.

The uptick in demand has helped raise sales and prices of many of these commodities after the sector battled months of tepid trading in April-June.

Most petrochemicals prices rose in the last couple of months, with PP and ACN prices seeing notable increases in September on festive season demand.

However, sales may still be lower in the range of 15%-30% from last year, according to sources.

Petrochemicals end-products -- white goods, brown goods, automotive components, paints, appliances, adhesives, and food packaging -- have all seen increased sales in August and September and may rise further, sources said.

Acrylonitrile demand is being driven by acrylonitrile butadiene styrene ABS -- a key building block for consumer durables, mobile phones and automobile components. Diwali is typically the peak demand season for such goods.

The textile sector in India has been a laggard in the absence of events such as weddings, travelling, and outdoor meetings. Though demand for purified terephthalic acid is high due to supply constraint concerns, demand in the downstream textile sector has not seen the festive fervor yet.

Aromatics

Solvent-MX, mostly used in paints and coatings, saw an upswing mid-September onward as the monsoons withdrew and the festive season stepped in, according to sources.

Demand from end-consumers for paints and coatings usually rise in the run up to Diwali.

Strong demand from India has raised prices of solvent-MX in northeast Asia, where most of the solvent-MX producers are located. The FOB Korea solvent-MX physical climbed to $441/mt on Sept. 18 from $384/mt on Aug. 28 -- the highest in six months -- before slipping to $428.50/mt on Oct. 2.

However, concerns remained on whether Indian end-users would maintain their appetite as most aromatics prices retreated on the back of a rout on upstream oil market in the week started Oct. 4.

India imported a higher volume of toluene in June and July compared with 2019 to make the most of a global price slump, which led to sustained heavy inventories in the last two months as demand did not rise in tandem.

Ahead of festivities next month, toluene consumption in India has recovered to 70%-75% of demand witnessed prior to the outbreak of the coronavirus, market sources said. However, sources said the uptick might fizzle out soon thereafter.

Intermediates

Acetic acid and VAM seem to be drawing support from a cyclical festive demand upswing, even as such consumption lags year-on-year performance, sources said.

India's most-consumed intermediate -- methanol -- has now plateaued at nearly 80%-85% of the earlier average after posting a sharp shipment recovery within two to three months following the coronavirus outbreak in the country, sources said.

Demand for purified terephthalic acid did gather in August and September, but it was more for restocking than for demand in downstream textiles sales.

ACN prices have risen sharply in recent weeks, driven largely by higher demand from ABS producers, which are running at full capacities to meet white goods' demand ahead of Diwali.

Polymers

Automotive, packaging, pipes, appliances, medical equipment, wire and cables have led demand for most polymers to rise in August and notably in September.

ABS, polypropylene and polyethylene manufacturing activities have picked up ahead of Diwali, sources said. Both these commodities are also used in automotive components.

Sentiment for the Indian polyethylene market -- the main contributor to packaging material -- turned bullish on festive season demand in September. "However, the demand might not rise to the levels it used to in previous years as the pandemic has hurt the festive cheer, but it is likely to improve from current levels," a source said.

Polyethylene demand was also supported during the lockdown period on the back of sanitizer bottles and food packaging. It is now back to pre COVID-19 levels after rising for more than three months. However, prices may take a bearish turn in November as heightened buying subsides after the festive season.

Demand for PVC, however, from both the construction and pipe sectors usually picks up after Diwali once labor returns. "That is when the fireworks for PVC suspension prices will really start," a Delhi-based trader said.