The Asian petrochemicals market remained in flux this week as Beijing continues to mull imposing a consumption tax on mixed aromatics imports.
There had been no official confirmation at time of publication, and market participants were expecting details to be released between May 1 and July 1.
The move, which will likely curb China's mixed aromatics imports, could boost demand for mixed xylenes and toluene, according to market participants. Speculation over the impending consumption tax has already had an impact on the solvent MX market, which has fallen silent as Chinese buyers adopt a wait-and-see approach.
Elsewhere in Northeast Asia, the political situation remains tense as US President Donald Trump turns his attention to North Korea over its nuclear weapons program, and China and Russia dispatch naval intelligence-gathering vessels to shadow US aircraft.
AROMATICS
Styrene monomer prices were expected to continue falling this week amid an ongoing supply glut. Inventory in East China over February-March averaged 120,000 mt, up from 80,000 mt a year earlier. East China inventory remains at 160,000 mt in April, pressuring the CFR China marker down by $20/mt last week to the $1,200/mt level.
Sentiment in the toluene market improved last week as buyers were more willing to buy cargoes. The FOB Korea marker rose $38/mt or 6% week on week to $653/mt last Thursday as a rise in crude futures helped support prices. Several deals were done in the domestic Chinese toluene market, pulling up prices by Yuan 25/mt week on week to Yuan 5,670/mt. Prices are likely to rise this week as market sentiment improves on talk of the China tax move.
Asian benzene may continue its downtrend from last week, when fading Chinese demand ended the uptrend of the week before, with participants set to remain on the sidelines to observe the supply and demand situation in China.
As for paraxylene, sentiment in China was subdued last week as the typically wide PX spread to naphtha narrowed. Last Thursday, the spread was assessed down $38.14/mt week on week amid declining PX prices due to a weak downstream purified terephthalic acid futures market, which outweighed gains seen in upstream crude and naphtha markets.
Adding further pressure to PX prices are the prevailing high inventories at Chinese PTA producers, while incoming supply from Turkey and the US that is due to arrive in Asia towards end May/early June is expected to cap any potential price rise while PX producers in Northeast Asia undergo turnarounds in the second quarter.
OLEFINS
The Asian ethylene market was stable last week, edging up $5/mt week on week to $1,170/mt CFR Northeast Asia and rising $10/mt to $1,050/mt CFR Southeast Asia last Thursday, buoyed by emerging spot demand amid lower operating rates at methanol-to-olefins plants, although it was unclear how long MTO plants would continue to run at low rates.
Steam cracker turnaround season and unplanned steam cracker shutdowns could also curtail spot supply of ethylene in Asia. Still, price increases would be limited as Iranian cargoes make their way to Asia amid heavy spot supply from Indonesia.
However, ethylene prices will likely remain strong this week as Chinese demand is picking up and ethylene to naphtha margins are wide at $650-$800/mt, well above the typical breakeven spread of $350/mt.
Steam crackers will likely maintain high operating rates due to the profitable margins, but this could result in a supply glut of butadiene. Prices declined $50/mt week on week to $1,300/mt CFR China last Thursday and look to fall further this week as weak market fundamentals continue.
China's domestic butadiene market remained weak as prices remained at a six-month low of Yuan 11,000/mt last week, while Sinopec slashed its prices in eastern China by Yuan 1,500/mt.
Propylene spot prices look stable this week as the Taiwanese continue to seek cargoes from South Korea and Japan due to outages at two Taiwanese residue fluid catalytic crackers operated by Chinese Petroleum Corporation and Formosa.
CPC's RFCC in Talin has a propylene capacity of 380,000 mt/year and Formosa's 350,000 mt/year. Formosa also has an olefin conversion unit at its RFCC that can produce 250,000 mt/year of propylene.
Chinese demand remains weak amid ample supply and demand in Southeast Asia continues to strengthen on restocking activity.
POLYMERS
The Asian polyethylene market strengthened last week as high Chinese inventories were slowly being consumed and demand for import cargoes grew slowly on improving downstream demand.
US producers were still offering cargoes to China, but at much lower volumes, although this could change once shale gas becomes more commercially viable; about 80% of US shale gas will be slated for PE production, market sources said.
Linear low density polyethylene prices dipped in Southeast Asia last week as end-users adopted a wait-and-see approach, but prices could stabilize this week as Chinese importers need to buy cargoes. Metallocene-based LLDPE will be more actively traded going forward as rising affluence and a growing middle class in Asia increase demand for higher grades.
Polypropylene prices in Far East Asia fell $15/mt to $1,010/mt last week, tracking the fall in Chinese domestic prompt prices, which were down Yuan 100/mt week on week at Yuan 8,000/mt. The notional FOB China marker fell $13/mt to $1,066/mt, a level that opened the arbitrage to Southeast Asia as traders needed to move volumes.
METHANOL, MTBE
Asian methanol prices fell $11/mt or 3.6% week on week to $291/mt CFR China last week on declining domestic prices in China, which fell Yuan 140/mt to Yuan 2,950/mt last Thursday. Prices could weaken further this week as the Chinese market remains volatile.
In contrast, the Asian MTBE market rose $46/mt or 4.7% last week to $698/mt FOB Singapore Thursday amid a rise in gasoline prices. This week could see some price correction on falling gasoline prices amid ample Chinese inventory.
