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Asia petrochemicals outlook, w/c Dec 10

Singapore — The Asian petrochemicals market is likely to be more stable this week after the OPEC meeting reached an agreement last Friday on a larger-than-expected production cut.

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This would help boost market sentiment to support petrochemical prices. Purified terephthalic acid prices are likely to stay firm due to tighter supply while ethylene is likely to bottom out.

OLEFINS

The Asian ethylene market is expected to bottom out, after the CFR Northeast Asia price marker fell to its lowest level since September 2015 on Friday. Some market sources said bargain hunting may emerge this week as the recent decline in spot ethylene prices has pushed up downstream production margins. Others said a price increase would be limited as supplies are expected to be heavy -- mainly from the Middle East and Southeast Asia -- until January.

Asian butadiene trade participants expect a short term uptick in spot prices, after thin trade last week. This is due to Chinese Secco's prolonged maintenance outage at its naphtha-fed steam cracker in Shanghai, as well as an electrical failure at South Korean Lotte Chemical's Yeosu steam cracker. However, downstream styrene butadiene rubber and acrylonitrile butadiene styrene markets continued to slip, indicating continued weakness in both the markets.

The imported propylene market is expected to remain stable this week after a bout of strengthening last week, when it jumped $50/mt week on week to $941/mt CFR China on Friday. However, some trade participants are not optimistic for this week as buyers are wary of picking up cargo, unless firmer demand is seen in downstream products such as polypropylene and acrylonitrile.

The Chinese methanol market appears to have stabilized, but questions remain on the possibility of a rebound as an ongoing China-Canada/US diplomatic spat could have ramifications on the headline-driven futures markets. The CFR China marker was assessed at $270/mt last Friday, unchanged week on week.

Elsewhere, burgeoning inventory levels in Taiwan, South Korea, and India could pressure sellers to clear tank space. Prices across these countries fell $17-$54/mt on the week, with South Korea recording the steepest fall. A bearish tone in Asia is set to continue this week, barring any spike in oil prices.

AROMATICS

Asian paraxylene prices rose $65/mt over the week, assessed at $1,068/mt CFR China/Taiwan and $1,048/mt FOB Korea Friday, after the industry-negotiated December Asia Contract Price failed to settle. Prices were supported by firmer purified terephthalic acid markets, and a surge in spot transactions for January and February delivery parcels, with five February cargoes traded in the Platts Market on Close assessment process. PTA users in China commented that long term contracts for 2019 PX supply are still underway, with the producers and end-users still far apart in terms of the differentials to the formula.

Asian benzene ended the week at a two-year low, with FOB Korea assessed down $18/mt on the week at $616/mt Friday. Prices peaked mid-week, only to fall later, in line with the upstream crude oil futures. CFR China was assessed down $10/mt on the week at $640/mt Friday. CFR China demand was strong, as the arbitrage between import and domestic cargoes stood open Friday.

However, there was some concern regarding the almost-full tank inventories in China. With February FOB USG paper assessed at 206 cents/gal ($615.94/mt).

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Asian styrene prices rose $41.50/mt week on week on improved sentiment earlier in the week after the G-20 summit. The markers were assessed at $1,025/mt CFR China and $980/mt FOB Korea Friday. Market sources noted that the positive sentiment that lifted prices was likely a temporary effect.

POLYMERS

Asian linear low density polyethylene was assessed up $10/mt in China on higher discussions while other regions remained stable amid thin trade. Market participants attributed the bullish LLDPE film sentiment to an increase in the Dalian Commodity Exchange futures, which rose by Yuan 150/mt week on week.

However, end-users in Southeast Asia and South Asia were not eager to join the buying, saying that all polyethylene grades, especially LLDPE, are expected to remain well-supplied into 2019. This is due to Asia being a target market, along with South America, for around 0.775 million mt/year of new US shale gas-based LLDPE capacity that is slated to commence exporting in 2019.

INTERMEDIATES

Asian purified terephthalic acid prices are expected to remain strong amid tight supply, despite weak demand from the downstream polyethylene terephthalate market. PTA spot availability in China was tight and met only four to seven days of demand, much lower than the normal level of two weeks. Downstream polyester sales-to-production ratio is likely to stay low in China. Such weak demand along the polyester chain will continue to pressure Asian monoethylene glycol prices amid ample supply, with MEG inventories reported around 700,000 mt at main ports of eastern China.

--Miranda Zhang, miranda.zhang@spglobal.com

--Edited by Shashwat Pradhan, shashwat.pradhan@spglobal.com