Demand recovery for petrochemicals in Asia remains uncertain amid fragile economic conditions in USA, EU

Demand recovery for petrochemicals in Asia remains uncertain as fragile economic conditions in the US and the eurozone continue to drag down growth in the key China market, as per ICIS. Manufacturing activities in China have been weakening, turning in a Purchasing Managers’ Index (PMI) reading of 50.6 points in April, down from 50.9 in March, mainly on weak export orders. Levels above the 50 threshold indicate expansion. “The slower growth of manufacturing activities in April confirmed a fragile growth recovery of the Chinese economy as external demand deteriorated and renewed destocking pressures built up,” said Hongbin Qu, chief economist for China and co-head of Asian Economic Research at HSBC. “The looming deflationary pressures also suggest softer overall demand conditions. All this is likely to weigh on the labour market, which is likely to invite more policy responses in the coming months.” China’s economic growth slowed down to 7.7% in the first quarter from a 7.9% clip posted in the last three months of 2012. The downbeat economic data from the key China market in April have sparked concerns over weakening plastics demand and weighed on the upstream naphtha market, which is expected to see an oversupply. Over half a mln of deep-sea naphtha supply is booked for Asia, with deliveries expected in June. Asia is poised to receive 1-1.1 mln tons of deep-sea naphtha in May, which includes around 300,000 tons of US arbitrage naphtha material.More arbitrage fixtures are expected over the next few weeks, as cracker maintenance in Europe will lead to more naphtha supply available for Asian customers. Naphtha and crude prices slumped in April, triggering price adjustments down the petrochemical chain, industry sources said. In the olefins market, prices went on a correction phase, partly on weakness in demand for derivative petrochemicals from the key China market. Demand for polyethylene (PE) and polypropylene (PP) is also slowing down in South Asia despite lower-priced deals and offers. End-users are unwilling to risk buying new material in May as they anticipate further price declines. Polymer suppliers worry about profitability being severely hit if prices continued to fall in the coming weeks. But they expect sales to pick up ahead of Ramadan, the Muslim fasting month that starts in early July and are not cutting run rates at plants. For styrenics resins, demand has also been poor as exports of finished goods to the US and the eurozone are in doldrums, keeping demand for feedstock styrene weak.