Petrochemicals outlook in Asia for week of August 5


The Asian petrochemical markets this week will continue to be pressured by the US president's announcement to impose 10% tariff on another US$300 bln worth of Chinese goods, effective September 1, as per SP Global Platts. The depreciation of the Chinese yuan against the US dollar, both offshore and on shore, which tracked the escalation in US-China trade tensions, may further impact petrochemical products and weaken buyers' interest for imported materials.

Sentiment in the Asian paraxylene market may turn bearish this week after the US announced it will impose tariffs on additional Chinese goods. Traders said there would be little support for PX prices downstream after last week's August PX Asian contract price negotiations failed to result in a settlement. The PX/MX spread would likely continue to narrow this week as the recent strength in Northeast Asian gasoline was curtailing MX spot supply. Domestic MX prices in China were heard to be firming up due to demand from PX producers or gasoline blenders.

Asian benzene is likely to firm this week, with the South Korean market likely to be tight in September as a major South Korean producer is scheduled to undergo maintenance, where a loss of around 58,000 mt of benzene is expected. Nevertheless, little change is expected for FOB Korea demand due to the open South Korea-US arbitrage window. Recent plant troubles and delayed shipments in Southeast Asia may keep supplies in the region tight in September. On the demand front, end-users will likely be more keen on buying fixed-price cargoes, while traders eye the falling east China inventories as an opportunity to work the import-domestic arbitrage.

Asian styrene monomer would likely remain bearish this week, pressured by weak demand from downstream markets after the additional tariff announcement. Market sources noted the weakening yuan would likely hamper demand for imported materials.

The Asian ethylene market is expected to be stable to firm this week as China was reported to be in need of some spot requirement due to the shutdown of a methanol-to-olefins unit for 15 days from the end of July in Jiangsu, China which produces 360,000 m tpa of ethylene. Ethylene supplies from Southeast Asia are also seen to be limited due to steam cracker turnaround season. The Shandong propylene market is expected to strengthen from a week ago after major producer, Tianjin Bohai Chemical, lowered the operating rate of its PDH plant to 50-60% since July 30 due to a technical glitch, and will only be fully operational by August 10. The strength in China's domestic propylene price is also lending support to the import market, and South Korean sellers are not willing to depart with their cargoes unless there is at least a $60/mt spread between the CFR China and FOB Korean market.

Chinese methanol prices are expected to be under pressure this week as China's offshore yuan weakened to slightly over US$7 in early Monday trade. Tank top issues and an influx of South American, Trinidad & Tobago and Southeast Asian cargoes will likely compound length in the market. Elsewhere, fundamentals in South Korea and Taiwan are likely to remain bearish until mid-September as traders and end-users grapple with high inventory levels and lackluster demand. Market sentiment along the whole polyester chain is likely to be bearish this week, amid the escalation of the US-China trade tensions. The US$300 billion worth of Chinese goods will include all Chinese textile and apparels exported to the US that have not been imposed a tariff. Asian purified terephthalic acid prices tumbled US$10/mt week on week last Friday, while monoethylene glycol prices fell US$7/mt CFR China over the same period. In plant news, both China's Tongkun Group Co. Ltd and Ningbo Liwan shut PTA lines with capacities of 1.5 mln m tpa and 720,000 m tpa, respectively, end-July, Platts reported previously.

The global outlook for the polyethylene market is bearish for the remainder of the year due to a combination of weak feedstock costs, weak global demand and anticipated plant start ups, according to market participants. An estimated 4-5 mln mt of new polyethylene supply is expected to come on line by end December, with 2.9 mln mt of it in the US and the rest in Asia.  Asian polypropylene prices moved up on snug supply and higher feedstock prices last week. The recycling movement also caused virgin PP demand to increase as the garbage recycling bins are made of PP, traders said. Propylene tightness had also added to the bullishness in PP, traders said. Asia's PP demand would still outstrip supply, especially in South Asia for the homopolymer grade, even as around 3 mln mtpa of new capacity is expected to start later this year or early next year, market sources said.

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