For the petrochemicals market, "the only certain part of the outlook is uncertainty" in the fourth quarter and next year, MOL Group External Environment Analyst György Halász said Nov. 5, citing coronavirus, political uncertainty and new rules on single-use plastic.
At the S&P Global Platts European Petrochemicals Virtual Conference, the Hungarian-based oil and gas group identified four major points of uncertainty for the petrochemical sector as Europe entered a second wave of COVID-19 infections. These included:
• New lockdowns and restrictions -- the length of which were unknown, with stringency highly variable across the continent leading to uncertain implications for downstream demand.
• Coronavirus vaccine -- the timescale of an effective vaccine rollout across Europe, "which may be the answer to the COVID problem," is still unknown with the possibility rolling lockdowns would be in place until this was resolved.
• Single-use plastic regulation -- new regulation such as the EU's proposed tax on plastic waste is causing uncertainty in pricing, particularly for PE grades such as HDPE.
• Political uncertainties – ongoing Brexit negotiations ahead of the scheduled 'no-deal' date of January 1, 2021, are causing uncertainty on whether material produced in the EU would be subject to tariffs and duty entering the UK. Also, in the US, two days after the presidential election the winner is not known with the potential for the issue to drag on for weeks or months.
Halász said the full petrochemical value cycle, which normally takes place on a timescale of five years or more, was seen in only 10 months from late 2019 into 2020.
He said the current increasingly weak market conditions differed from the weakness seen during the first wave of the pandemic when crude and naphtha prices slumped due to very soft demand from the fuel and blending sector, while petrochemical demand from the hygiene and medical sectors soared.
"April-May saw strong margins, the reason why was feedstock prices dropped for multiple months. Import pressure [on feedstock] disappeared as imports couldn't reach European markets at an acceptable price. The demand side [had] a bad period," he said.
"This time it is weak, but in a different way. There is external demand for feedstocks, particularly from China, with new ethylene capacities coming online in Asia and the US. High naphtha demand is keeping naphtha crack spreads high."
