Singapore — Demand and supply fundamentals, as well as the impact from a weakened yuan, will largely dominate Asian petrochemical markets in the week ahead. Paraxylene is expected to remain firm on strong November demand amid production issues in Asia, while benzene remains bearish due to an increase in supply for October and November.
OLEFINS
Ethylene is expected to remain stable in the week as market participants stood on the sidelines waiting for a clearer price trend to emerge. Sentiment from buyers and sellers are mixed, with one seller noting prices have bottomed out and to rebound soon amid plant turnarounds in Northeast Asia. However, buyers are in no hurry as cargoes of various origins are widely available. Supply in Asia is rising as European cargoes are also offered into Northeast Asia.
Asia's butadiene market is expected to weaken on low buying interest with most buyers having already covered their October requirements. Adding to this, end-users' buying interest is stymied by weak demand from the key downstream acrylonitrile-butadiene-styrene and styrene-butadiene rubber markets as well as thin margins.
But propylene will likely see a boost this week from stronger Chinese buying interest ahead of the week-long National Day holiday starting October 1. Further upside is seen from turnarounds at three major South Korean propylene plants over September to November, further tightening supply in the market. As Japanese producers have either shut or reduced operating rates due to Typhoon Jebi, more spot buying interest is expected from Japan.
AROMATICS
PX hit a fresh four-year high last Thursday on the back of firm November demand. Market participants noted that while the surge in spot prices for September and October delivery cargoes were mostly driven by the downstream futures market, the bullishness in November was mainly driven by tight fundamentals stemming from production and supply issues across Asia.
"Another factor is that with PTA [purified terephthalic acid] margins soaring earlier in the month, all the PTA producers are running PTA plants at full capacity and hence PX inventories have also been depleting," a trader said.
The Asian benzene market though, is expected to remain bearish this week as supply continues to outstrip demand. With PX prices hovering at four-year highs, many aromatics units have ramped up production, increasing supply of benzene, according to market participants. In the Chinese market, import cargoes were heard offered at a premium of $7-$8/mt to the FOB Korea benchmark, but end-users remained hesitant amid a weak yuan. Some demand for October-loading cargoes was heard from Southeast Asia, with last deals on a FOB Southeast Asia basis heard concluded at a discount in the mid-teens to FOB Korea.
INTERMEDIATES
Weaker demand is expected in the Asian PTA market, as downstream polyester producers had cut operating rates to around 85% of capacity. The capacity is almost 10 percentage points lower from early August because of narrowing or even negative margins.
In caprolactam, a pickup in demand is expected as buyers look to restock ahead of turnarounds scheduled for the fourth quarter. Plants undergoing turnaround in Q4 include Taiwan's China Petrochemical Development Corp., which plans to shut its 200,000 mt/year caprolactam plant in Hsiaokang, Kaohsiung, in December for annual maintenance. Amid the price rise, producers were heard enjoying a widening spread between caprolactam and feedstock benzene. In the Chinese market, operating rates of caprolactam plants were heard at approximately 80%, capped by limited supply of feedstock cyclohexanone, which was heard difficult to procure.
POLYMERS
Asia's ABS market is expected to remain bearish amid atypical thin buying interest during the traditional peak demand season which usually falls in August and September. Uncertainties over prices in related upstream markets have led end-users to keep inventories low and purchasing only on a need-to basis, according to industry sources. This in turn, led some producers to consider reducing operating rates from October and November. ABS was assessed at a year-to-date low of $1,840/mt CFR China last Wednesday.
In polystyrene, Chinese end-users are expected to buy more import cargoes as general purpose polystyrene was heard to be at a "favorable" discount to Chinese domestic cargoes. "Unlike styrene and ABS markets, many Chinese GPPS end-users prefer to buy import cargoes because of the attractive price. Domestic polystyrene are more expensive at around Yuan 12,400/mt," a Chinese trader said. However, market sources also noted that polystyrene buyers have reduced buying due to weak sentiment and price pressure in upstream Asian styrene market. In the Southeast Asian market, a deal was heard done at $1,610-$1,630/mt CFR Southeast Asia level last week.
Asian low density polyethylene prices are still expected to remain weak due to the demand lull. Majority of Chinese downstream producers are not running at high rates, and do not want to produce too much finished products for the year-end Christmas festivities, on concerns over their inability to export to major markets such as the US. Flexible packaging converters in Indonesia and Malaysia said they have received an increasing number of export inquiries for the end product to be exported to the US amid the intensified threat of a full-blown trade war between China and the US, market sources said. More Southeast Asian ethylene cargoes have been offered to Northeast Asia, as it is more profitable to export ethylene instead of producing polyethylene, a trade source said.
