The Asian petrochemical market will be closely watching crude oil movements this week after prices fell by varying degrees last week, when crude futures slumped in response to Thursday's OPEC meeting in Vienna. The OPEC/non-OPEC coalition have agreed to extend the current oil output cut deal by nine months to the end of March.
In Northeast Asia, markets were poised to be quiet during the first two days of the week due to public holidays in China, Hong Kong and Taiwan. A supply glut in that region and slower demand was not expected to provide much support to Northeast Asian prices.
In South Asia, most market participants were waiting with bated breath on the impact of India's goods and services tax on the plastics industry, which would be rolled out officially on July 1.
According to market talks, the tax on petrochemicals and its derivatives was likely to be 18%. As the Indian government will be finalizing the tax rate this week, many market participants are opting to take a wait-and-see stance for now, dampening demand.
AROMATICS
Asian styrene monomer fell $34/mt week on week amid weaker Western crude futures and bearish downstream demand. However, CFR China prices were partially supported by tight domestic supply amid turnarounds at Sinopec Qilu and Tianjin Dagu, as evidenced by SM inventories in East China falling 10.52% week on week to 91,900 mt last Friday.
Downstream demand for styrene monomer is expected to remain sluggish for June amid a bearish near-term outlook for China's automobile market.
Benzene prices dropped last week amid poor demand on a closed arbitrage to the US Gulf Coast, and with weaker downstream styrene monomer, the downtrend looks likely to continue this week.
Paraxylene prices also tumbled $35.67/mt week on week following the fall in crude futures.
This week, the market will be caught up in the monthly Asia Contract Price negotiations and results. Late last week, state-owned China Petroleum and Chemical Corp., or Sinopec, settled its May PX CP at Yuan 6,840/mt, down Yuan 90/mt from its April settlement.
Japan's JXTG Nippon Oil & Energy has nominated its June PX ACP at $890/mt while South Korea's SKGC nominated at $900/mt. South Korea's S-Oil Corp. had already nominated at $890/mt too, $55/mt higher than its nomination for May.
OLEFINS
Volatility was prevalent in the butadiene market as there were some indications that the Chinese market was starting to improve. But oversupply and poor demand were still adding downward pressure to the market.
This week, producers may take additional steps to curb production as butadiene prices are lower than ethylene prices. FOB Korea butadiene prices on Friday fell below $1,000/mt for the first time since June 29, 2016. Margins were getting narrower too since naphtha was holding in the mid-$400s/mt.
On Friday, Sinopec cut its eastern China offers to Yuan 8,500/mt, down Yuan 500/mt.
In propylene, CFR Northeast Asia prices soared $49/mt or 5.7% week on week to $910/mt Friday on the back of tightening supply. According to market sources, three propane dehydrogenation plants in China were about to undergo maintenance in June, reducing spot supply.
Buying interest in Northeast Asia is expected to be firm. As for Southeast Asia, the propylene market remained flat on sluggish demand.
The ethylene market was bearish as spot prices remained under pressure, plunging $60-$70/mt week on week. For the short term, the demand-supply balance tilted towards heavier supply as a few steam crackers were due to come online in the coming weeks.
South Korea's Korea Petrochemical Industry Co., or KPIC, will restart its sole naphtha-fed steam cracker in Onsan this Thursday or Friday. Its ethylene capacity will be 800,000 mt/year following the completion of its expansion program.
POLYMERS
Operating rates of recycled polymer factories in China remain low, having decreased to 30%-40% this year from an average rate of 50% last year, because of stronger inspection checks by the Ministry of Environmental Pollution, sources said.
The operating rates have been subdued because of the combined effect of the recycling workshops -- both importing scrap plastics and processing domestic waste products -- and the government checking on scrap imports meeting environment control standards and workshops using scrap in-house and not reselling to another party, sources said.
China is the world's biggest scrap plastics importer and processor. Although actual figures were unavailable, the global scrap market is estimated at around 1 million-2 million mt/year. Many plastic-processing companies in Hebei, Tianjin, Henan, and Beijing were ordered to shut in February when air pollution levels hit alarming limits, sellers said.
Asian polypropylene prices rose $20/mt week on week on tight supply and, indirectly, bullish sentiment in financial markets.
The domestic PP marker surged Yuan 300/mt over the same period to Yuan 7,950/mt, equivalent to $928/mt on an import parity basis, while inventories stayed at 850,000 mt.
The arbitrage window to Southeast Asia was closed, as the FOB China market hit $1,063/mt, with freight rates at $20-$25/mt.
METHANOL, MTBE
Methanol prices continued to be a mixed bag last week, as CFR China inched up $2/mt on higher bids while Southeast Asia dipped $3/mt on ample supply. Prices were expected to remain stable this week on lackluster demand amid ample supply.
Malaysia's Petronas Chemicals will shut its 660,000 mt /year No. 1 methanol plant at Labuan in October for 38 days of maintenance.
MTBE prices fell last week owing to lower crude and gasoline prices. Buying interest for MTBE was also sluggish as key buyers such as China reduced their imports on the back of sufficient domestic inventory. This week, prices are expected to stay flat.
FIBER INTERMEDIATES
Asian monoethylene glycol prices slid $17/mt week on week to $755/mt CFR China and $758/mt CFR SEA on Friday, on declining feedstock ethylene prices. China's MEG imports had fallen from 719,626 mt in March to 665,241 mt in April, a month-on-month slide of 54,385 mt.
Prices fell in the beginning of the week as anxious traders had to liquidate their earlier short positions due to their 90-day letters of credit expiring.
According to market participants, supply would be tight in June and July due to quite a few major producers conducting maintenance at their plants, which added some positive sentiment to the bearish market.
Purified terephthalic acid prices tumbled $35.67/mt week on week, amid a sharp drop in upstream prices as well as in PTA futures on the Chengzhou Commodity Exchange.
September futures shed more than Yuan 120/mt day on day to close at Yuan 4,814/mt Friday afternoon. Warehouse inventories were estimated to be around 1 million mt.
Still, downstream demand for polyester was said to be healthy, while polyester operations were stable, according to market sources.
