Naphtha

LONDON (ICIS)–Chemical stocks in Europe have firmed in line with the general market in midday trading on Monday, as oil prices subsided and investor unrest eased despite ongoing tensions in the Middle East. Asia-Pacific equities had tumbled in earlier trading on the back of growing hostilities over the weekend after Iran launched ordinance into Israeli airspace late on 13 April. The Israel Defence Force (IDF) confirmed the attack, with Rear Admiral Daniel Hagari stating in a briefing on Sunday that none of the 170 drones launched from Iran had entered Israeli airspace, and fighter jets mobilized to intercept cruise and ballistic missiles had shot almost all of them down. The handful of ballistic missiles that crossed into Israeli territory were intercepted and fell at the Nevatim airbase in the south of the country, but damage to infrastructure was limited and the base is currently operational, he added. Lingering unease from the attack, and the potential for an Israel-Iran conflict to escalate further bled into early Monday trading, with Hong Kong’s Hang Seng index and Japan’s Nikkei 225 index closing down 0.72% and 0.74% respectively. Taiwan and India felt the chill more keenly, with the Taiwan SE and Bombay Sensex bourses closing down 1.38% and 1.14% respectively. European bourses were less unsettled on Monday, with Germany’s DAX and France’s CAC 40 trading up 1.01% and 1.09% respectively, while the UK FTSE 100 was little changed at 13:10 BST. European chemicals stocks moved higher on Monday, with the STOXX 600 chemicals index trading up 0.34% from Friday’s close, with Solvay, Evonik and Arkema among the biggest gainers. The decline in oil prices also deepened from earlier in the day, with the value of Brent crude June futures dropping 87 cents to $89.58/barrel in noon trading. The fall in crude values represents a decline in the overall risk premium priced in at present in response to Middle East tensions, but they are a long way from a more comprehensive rollback. Oil prices have increased by over $8/barrel since mid-March. Crude and downstream pricing as of 12:00 BST Monday Product Latest Previous Change Brent June 89.58 90.45 -0.87 WTI May 84.74 85.66 -0.92 Naphtha 677.00 695.00 -18.00 Benzene 1203.00 1205.00 -2.00 Styrene 1800.00 1815.00 -15.00 An attack from Iran had been threatened for weeks following a strike on its embassy in Damascus, Syria. The fact that the response was telegraphed in advance, consisted largely of slow-moving drones and resulted in little damage and no fatalities, has reassured markets that there is scope for a de-escalation. “The fact that there was limited damage and no loss of life may also provide some comfort to the market, as it may mean a more measured response from Israel,” said ING analysts in an oil market note issued on Monday. Iran said it considers the conflict concluded and US diplomats are reportedly urging restraint in Israel, but further salvos, which will represent Iran’s first direct attack on Israel, means that tensions could rapidly intensify. “The US and allies are pushing for a diplomatic response, while the risk is that hardliners within the Israeli government push for a more aggressive response,” ING added. Multiple western governments have officially condemned Iran for the attack which took place on the same day that Iran’s Revolutionary Guard Corps seized a ship passing along the Strait of Hormuz, according to data provider Xeneta. Any moves to sanction Iran or measures that could restrict the country’s flow of oil into global markets could tighten supplies in the short term, ING added. Focus article by Tom Brown Thumbnail photo: The bell ceremony at the Euronext exchange in Brussels, Belgium. Source: Shutterstock

15-Apr-2024

SINGAPORE (ICIS)–Here are the top stories from ICIS News Asia and the Middle East for the week ended 12 April 2024. China Mar petrochemical markets mixed; Apr demand on seasonal uptick By Yvonne Shi 12-Apr-24 14:19 SINGAPORE (ICIS)–Fluctuations in China’s domestic petrochemical markets were limited in March, yielding a mixed performance during the month, while a seasonal improvement in demand is expected in the near term. Tight intra-Asia container shipping space dampens recycling trades By Arianne Perez 12-Apr-24 13:34 SINGAPORE (ICIS)–Major Asian recyclers are feeling the pinch of continued uptrend in spot container freight costs for trade within Asia since March. Asia naphtha demand slows down; supply stays ample By Li Peng Seng 11-Apr-24 13:00 SINGAPORE (ICIS)–Asia’s naphtha crack, the spread between Brent crude and the chemical feedstock prices, hit a five-month low recently and it will remain under pressure in the weeks ahead as ample supplies, slower demand and firm crude prices limit any improvement in the spread. Asia ADA sees plant shutdowns amid supply overhang By Josh Quah 11-Apr-24 11:25 SINGAPORE (ICIS)–Asia’s adipic acid (ADA) markets have begun to crack under the cost pressure and weak demand from the main polyurethane (PU) downstream sector. Fitch downgrades China rating outlook to ‘negative’ as debts pile up By Pearl Bantillo 10-Apr-24 15:16 SINGAPORE (ICIS)–China’s fiscal challenges amid rising government debt and its prolonged property slump weighing on recovery prospects prompted Fitch to revise down its credit rating outlook for the world’s second-biggest economy to “negative” from “stable”. Korea trade body starts antidumping probe on China SM imports By Luffy Wu 09-Apr-24 14:18 SINGAPORE (ICIS)–The Korea Trade Commission has decided to initiate an anti-dumping investigation on imports of styrene monomer (SM) from China. INSIGHT: Positive China Q1 data overshadowed by property sector gloom By Nurluqman Suratman 09-Apr-24 12:00 SINGAPORE (ICIS)–China's economic narrative in early 2024 reflects a 'tale of two cities', with its ailing property sector once again playing the crucial protagonist against recent data which offered flickers of hope for the country's continued recovery this year. Saudi Arabia hikes benchmark May Arab Light OSP for Asian customers By James Dennis 08-Apr-24 18:15 SINGAPORE (ICIS)–Saudi Arabia, the world’s largest crude exporter, increased its Official Selling Prices (OSP) for its benchmark Arab Light crude for customers in Asia for the second month in succession. Oil slumps by more than $2/bbl on Israel-Hamas ceasefire hopes By Nurluqman Suratman 08-Apr-24 12:23 SINGAPORE (ICIS)–Oil prices fell by more than $2/barrel on Monday amid easing tensions in the Middle East after Israel further withdrew troops from southern Gaza and signalled a willingness to resume ceasefire talks with Palestinian militant group Hamas.

15-Apr-2024

SINGAPORE (ICIS)–INEOS said on Monday that it has completed acquisition of TotalEnergies’ 50% share in their three joint ventures, as well as some other infrastructure assets in France. The targets are Naphtachimie, Appryl and Gexaro, which were 50:50 joint ventures between INEOS and the French energy major at Lavera in southern France. Financial details of the acquisition were not disclosed. The deal includes one of Europe’s largest steam crackers which can produce 720,000 tonnes/year of ethylene under Naphtachimie; an aromatics business with a 270,000 tonne/year capacity under Gexaro; and a 300,000 tonne/year polypropylene (PP) business under Appryl. INEOS also acquired a naphtha storage, as well as other infrastructure assets, including part of TotalEnergies’ ethylene pipeline network in France. INEOS will now fully integrate the Naphtachimie, Gexaro and Appryl petrochemical businesses, assets and infrastructure into INEOS Olefins & Polymers South at Lavera in southern France, the company said. Gexaro, which is located on the Lavera refinery site will continue to be operated by Petroineos.

01-Apr-2024

LONDON (ICIS)–Details of the provisional agreement on the Packaging and Packaging Waste Regulation (PPWR) have been published, containing a number of wide-ranging elements which will reshape the packaging sector across the next two decades. The regulation is now reaching its final stages but has faced a fraught journey through the various legislative chambers of the EU and has remained divisive among both legislators and the markets. Under the provisional agreement the regulation will introduce: Mandated packaging recyclability Minimum recycled content and reuse targets across packaging – albeit with potential derogations based on availability of recycled material Mandatory deposit return schemes (DRS) and separate packaging collection targets New reporting and labelling obligations The extension of extended producer responsibility (EPR) schemes A restriction on the placing on the market of food contact packaging containing per- and polyfluorinated alkyl substances (PFAS) above certain thresholds A restriction on plastic collation films except for transportation purposes The possibility of bio-based plastic contributing to recycling targets The allowance of imports to count towards recycling targets provided they are of similar quality as domestic material and have been separately collected The Committee of the Permanent representatives of the Governments of the Member States to the European Union (Coreper) endorsed the Packaging and Packaging Waste Regulation on 15 March following amendments to the provisional agreement reached by the EU Parliament and EU Council (but not endorsed by the EU Commission) during the trilogue negotiations. The European Parliament Committee on Environment, Public Health and Food Safety (ENVI) endorsed the provisional agreement on 19 March. NEW RE-USE TARGETSBy 1 January 2030, 40% of most transport packaging used within the EU – including e-commerce – will need to be reusable and ‘within a system of reuse’. This includes pallets, foldable-plastic boxes, boxes, trays, plastic crates, intermediate bulk containers, pails, drums and canisters of all sizes and materials, including flexible formats or pallet wrappings or straps for stabilisation and protection of products put on pallets during transport. From 2040 this will increase to 70%.  Some players said that this amounted to a defacto ban on flexible plastic transport packaging because of the difficulty in reaching the reuse target. By 2030, 10% of grouped packaging boxes for stock keeping or distribution will need to be re-usable. Controversially, cardboard boxes will be exempt from these reuse targets, which could see an increased shift to the material. Dangerous goods transport packaging, large scale equipment transport packaging, and flexibles in direct contact with food and feed as defined in Regulation (EC) No 178/2002, and food ingredients as defined in Regulation (EU) No 1169/2011 will also be exempted. By 2030, distributors of alcoholic and non-alcoholic beverage sales packaging will need to meet a 10% reuse target, which will increase to 40% by 2040. Some classes of alcoholic beverage, including highly perishable alcoholic beverages will be exempted. RECYCLABILITY AND REUSEBy 2030 all packaging must be recyclable or reusable. To be classed as recyclable, packaging must be: Designed for recycling Separately collected Sorted in to defined waste streams without affecting the recyclability of other waste streams Possible to be recycled so that the resulting secondary raw materials are of sufficient quality to substitute the primary raw materials Packaging recyclability performance grades are to be established by packaging category and classified as grades A, B or C. After 1 January 2030 any packaging that falls below grade C will be restricted from sale in the market. After 1 January 2038 packaging classified below grade B will be banned from sale in the market. Under the legislation, along with design for recycling assessments from 2035 an additional assessment will be added based on the weight of material effectively recycled from each packaging category – with the packaging categories under the design for recycling assessment established in Article 6 paragraph 6 of the provisional agreement. The EU Commission will be given power to adopt delegated acts to establish the detailed criteria for the design for recycling criteria under the packaging categories, with criteria to be set-out by 1 January 2028. Also from 2035, a requirement that material be ‘recycled at scale’ will be added to the recyclability assessment, with the EU Commission able to amend the thresholds. The definition of packaging waste recycled at scale requires separate collection sorting and recycling of material across the EU as a whole (including of waste exports) in installed infrastructure for each of the packaging categories of at least 55% for all materials except for wood which requires at least 30%. Assessments of recyclability will include the impact on recycling systems of the inclusion of things such as barriers, inks and labels. By the end of 2026 the EU Commission will be required to prepare a report on ‘substances of concern’ that might negatively affect recycling or reusability, with additional restrictions added for those substances under recyclability assessments. Member states will be able to request the EU Commission consider restricting substances they consider detrimental to recycling. Within 7 years from the date of application of the regulation, the Commission will be required to evaluate whether the design for recycling requirements have contributed to minimising substances of concern. A five-year exemption on meeting recyclability targets will be given for innovative packaging, along with an exemption for medical goods and medical goods packaging, dangerous goods and packaging for food-contact material specifically made for infants. Sales packaging made from lightweight wood, cork, textile, rubber, ceramic or porcelain is also expected to be exempted from most of the recyclability requirements. MINIMUM RECYCLING TARGETS FOR THE PACKAGING CHAINUnder the provisional agreement, from 1 January 2030, or three years after the introduction of the related implementing act (whichever is later) all plastic packaging placed on the market in the EU must include a minimum percentage of recycled content from post-consumer waste – by weight – of: 30% for contact sensitive packaging (this is generally packaging that comes into contact with food or medical supplies), excluding single-use bottles made from polyethylene terephthalate (PET) as the major component 10% for contact sensitive packaging made from plastic materials other than PET, except single use plastic beverage bottles 30% for single use plastic beverage bottle 35% for all other packaging By 2040, this will increase to: 50% for contact sensitive plastic packaging made primarily from PET, except for single use plastic beverage bottles 25% for non-PET contact sensitive plastics, with the exception of single use beverage bottles 65% for single use beverage bottles and all other plastic packaging The recycled content targets will allow the use of material from ‘third countries’ – those outside of the EU – the allowance of which has been one of the most contentious and heavily lobbied parts of the bill on either side of the argument. Material from outside of the EU will need to have been separately collected, and have equivalent specification to the requirements listed in the PPWR, the Waste Framework Directive (2008/98/EC), and the Directive on the reduction of the impact of certain plastic products on the environment ((EU) 2019/904). Medical packaging, transportation of dangerous goods, compostable plastic packaging and food packaging for infants and young children will be exempt from the recycled targets. The Commission is obliged to adopt implementing acts establishing a methodology for the calculation and verification of these recycled percentages by 31 December 2026. The Commission will be able to amend the targets based on "excessive prices of specific recycled plastics" and on the grounds that the amount of recycled content would pose a threat to human health or result in non-compliance with Regulation (EC) 1935/2004 – or to any plastic part representing less than 5% of the total weight of the whole packaging, which would typically include things such as functional barriers. By 1 January 2028 the Commission will be required to assess the need for further exemptions from recycled content targets for specific plastic packaging based on a lack of suitable recycling technologies. It will have the power to introduce implementing acts to amend the recycled content targets based on those assessments. Member states will also be able to exempt economic operators from reuse targets for 5 years as long as: that Member State has reached 5 percentage points above the 2025 recycled targets for recycling of packaging waste per material It is expected to reach 5 percentage points above the 2030 target (as assessed by the EU Commission) It is on track to meet waste prevention targets under the PPWR It has reached a 3% waste prevention by 2028 compared with a 2018 baseline The economic operators have adopted a corporate waste prevention and recycling plan that contributes to achieving the waste prevention and recycling objective The five year exemption can be renewed by Member States provided the conditions remain filled. This would appear to lead to the prospect of uneven trading conditions across the EU. The targets will be calculated by year and manufacturing plant. The 2030 targets under the PPWR will replace the targets set out in the Single Use Plastics Directive (SUPD) from 2030, but the pre-2030 targets in the SUPD will remain. EPR schemes will be extended under the legislation and must be set-up to ensure that fees to producers (or those with producer responsibility in the case of imports) are sufficient to cover the ‘full waste management’ cost of packaging waste, but actual fees are not stipulated in the legislation. The provisional agreement states that players contributing to EPR schemes should be given priority access at market prices to recycled material corresponding to the amount of packaging placed in a Member State by each individual economic operator. SINGLE-USE PLASTICS, PACKAGING WASTE TO LANDFILL, AND PFAS BANSThere will be further bans on single-use plastics introduced by the PPWR, which remain broadly inline with those proposed in the EU Council’s bargaining position. Significantly, for the recycled low density polyethylene (R-LDPE) flexible market this includes a ban on plastic film wrap grouping bottles, cans, tins, pots, tubs, or packets together in multi-packs at point of sale, but will not include wrap used for business-to-business distribution. This could also impact on pyrolysis-based chemical recyclers because post-consumer flexibles have been identified by the sector as a potential key feedstock source. The agreement also includes a ban on food-contact packaging containing PFAS above certain thresholds. There will also be a restriction on sending packaging waste that can be recycled to landfill or incineration, which could result in a higher sorting requirements and costs for waste managers. BIO-BASED MATERIALBy three years from the entrance in to force of the PPWR the EU Commission will be obliged to review the state of technological development and environmental performance of bio-based plastic packaging. Following this, the Commission will be required to bring forth legislative proposals for targets to increase the use of bio-based plastics in packaging, this will include the possibility of bio-based material contributing to recycling targets for food-contact material where recycled material is not available. This is likely to impact most heavily on the polyolefins and polystyrene sectors. CHEMICAL RECYCLINGThe original commission draft appeared to clarify and support the use of chemical recycling as counting towards the targets as long as its end use is not for fuel or backfill. In a blow for chemical recyclers, however, the wording around definition of recycling has been removed, and now refers back to Directive 2008/98/EC which forms the basis of the majority of EU recycling legislation definitions. Directive 2008/98/EC defined recycling as “any recovery operation by which waste materials are reprocessed into products, materials or substances whether for the original or other purposes. It includes the reprocessing of organic material but does not include energy recovery and the reprocessing into materials that are to be used as fuels or for backfilling operations." This has left the legal status of chemical recycling uncertain, particularly for pyrolysis – the dominant form of chemical recycling in Europe – where mixed plastic waste is commonly converted to pyrolysis oil – a naphtha substitute – before being reprocessed into recycled plastics. MEMBER STATE TARGETS AND DEPOSIT RETURN SCHEMES (DRSs)Member state targets and obligations to implement DRSs remain broadly the same as in the EU Council’s bargaining position paper. The exception is that the figure on the collection figure for member states to exempt themselves from a DRS scheme has been increased to 80% by weight of applicable packaging placed on the market for the first time in 2026, up from 78% in the EU Council's bargaining position. The legislation's passage through the EU has been fraught, with the EU Commission objecting to the provisional agreement between the Parliament and the Council, and with widespread talk circulating in the run up to the vote that the members would not support it at Coreper. These factors are understood to be behind the last minute amendments. The regulation now faces a final approval vote in the EU Parliament’s April plenary session, if it passes that vote it will be adopted in to law. Insight by Mark VictoryAdditional reporting by Matt Tudball Clarification: recasts detail in 51st paragraph

25-Mar-2024

SINGAPORE (ICIS)–The Japanese yen (Y) fell to a four-month low on Wednesday despite the decision by the Bank of Japan (BoJ) to end its long-standing negative interest rate policy. The weakening of the currency would be beneficial for exports but would translate to higher import costs. At 04:10 GMT, the yen weakened to Y151.41 to the US dollar, the lowest so far this year, after falling by more than 1% on 19 March, compared with Y140.82 on 1 January this year. While the BoJ's move away from negative rates might seem hawkish, the central bank made it clear that this is a one-off move in the near term, stating that it "anticipates to maintain accommodative financial conditions for the time being." "The market probably expects that the central bank would move at a glacial pace, which must be disappointing – especially with the Fed's [US Federal Reserve] move likely to be smaller than expected," Dutch banking and financial services firm ING said in a note. At its 18-19 March monetary policy meeting, Japan’s central bank ended its negative interest rate policy (NIRP) and scrapped the yield curve control (YCC) program, largely in line with market expectations. In 2023, the Japanese yen slumped by around 11% against the US dollar, posting its biggest decline among other major currencies, as the BoJ maintained its key interest rate at minus 0.1%, while others, led by the US, had had aggressively tightened monetary policy to temper strong inflationary pressures. The yen’s weakness pushed up Japan's exports to a record high last year, but the country registered its third consecutive year of a trade deficit at Y9.29tr as import costs surged. Exports remained on an upward trend this year, rising by 11.2% year on year in January on the back of improved shipments of vehicles and auto parts, while imports fell by 9.6% amid declining energy prices and weaker demand. A weaker yen also gives Japanese chemical exports a price advantage overseas, but it also cuts into profit margins by raising the cost of imported energy needed for production. The country's total chemical exports remained in the negative for most of 2023 on sluggish global demand but has made a recovered since December, with January 2024 data showing a 11.2% year-on-year increase in shipments abroad. Naphtha is the primary feedstock for Japanese refiners and petrochemical producers is. Around half of their naphtha requirements is imported, with the rest coming from domestic crude oil distillation units. Japan's overall naphtha imports totalled 25m kilolitres in 2023, while imports stood at 13.2m kilolitres, according to data from the Ministry of Economy, Trade and Industry (METI). Summary of the BoJ's new monetary policy framework The BoJ will restore the uncollateralised overnight call rate as a primary policy tool and set the rate in a range between 0% to 0.1%, from -0.1% previously. A continuation of its Japanese government bonds (JGBs) purchases with broadly the same as before – currently about Y6 trillion a month. The central bank will discontinue the purchase of exchange-trade funds (ETFs)/J-REITs while gradually reducing the amount of purchase of CP and corporate bonds. It will discontinue the purchases in about a year. Japan's REITs, also known as J-REITs, are publicly traded real estate investment trusts. The BoJ has also opted to change its terms and rates for lending facilities.

20-Mar-2024

SINGAPORE (ICIS)–Here are the top stories from ICIS News Asia and the Middle East for the week ended 8 March 2024. Asia, Mideast petrochemical trades to slow down during Ramadan By Nurluqman Suratman 08-Mar-24 13:10 SINGAPORE (ICIS)–Trades for several petrochemicals in Asia and the Middle East will slow down as markets observe Ramadan starting 10 March, with demand going into a lull amid shorter working hours during the Muslim fasting month. Asia naphtha sentiment improves; supplies to tighten By Li Peng Seng 08-Mar-24 12:12 SINGAPORE (ICIS)–Asia’s naphtha intermonth spread rose to a one-month high on 7 March amid expectations of fewer arbitrage cargoes arriving in April from the west due to Europe’s demand for gasoline and petrochemicals. Lotte Chemical mulls 'strategic measures' for Malaysian-listed LC Titan By Nurluqman Suratman 07-Mar-24 13:35 SINGAPORE (ICIS)–South Korean producer Lotte Chemical said on Thursday that it is exploring options for its Malaysian subsidiary, in response to local media reports that the unit is up for sale. Weak China demand to weigh on oil markets despite OPEC+ supply cut extension By Fanny Zhang 06-Mar-24 12:45 SINGAPORE (ICIS)–China’s economic weakness will continue weigh on crude oil prices despite the decision by oil cartel OPEC and its allies (OPEC+) to prolong their production cuts to support the market. Asian spot TiO2 market set to enjoy support in March By Joson Ng 01-Mar-24 13:11 SINGAPORE (ICIS)–The titanium dioxide (TiO2) Asian spot market is likely to see improving or stable demand in March, especially in China, as the traditional peak demand season kicks in. As producers in China are also citing a healthy number of orders on hand, they are not likely to allow cargoes to go unless the bids are close to their valuation. Asia polyester market at standstill amid firm costs, weak fundamentals By Judith Wang 05-Mar-24 14:07 SINGAPORE (ICIS)–The polyester export market in Asia has fallen into a standstill amid a tug of war between firm cost pressure and weak market fundamentals. INSIGHT: China 2024 growth target will require stronger stimulus measures By Nurluqman Suratman 07-Mar-24 00:29 SINGAPORE (ICIS)–China is likely to need to introduce stronger stimulus measures to meet its official growth target of around 5% for this year given the country's deep structural imbalances. Chemical, palms freight costs up as tanker supply tightens into March By Hwee Hwee Tan 07-Mar-24 18:02 SINGAPORE (ICIS)–A tanker supply crunch persisting into March has pushed up shipping costs for chemical and palms cargoes traded on Asia’s spot market.

11-Mar-2024

SINGAPORE (ICIS)–Japan's core consumer inflation in January rose by 2.0%, matching the Bank of Japan's (BoJ) price stability target and supporting expectations that the central bank will end its ultra-low interest rates policy by April. Consumer inflation at lowest since March 2022 BoJ’s benchmark interest rate at -0.1% since Jan 2016 Weaker yen drives up import costs The core consumer price index (CPI) – which excludes volatile fresh food prices – in January weakened from 2.3% in the previous month, marking its third straight month that the country's inflation has slowed, data from the Statistics Bureau showed on Tuesday. January's core CPI reading also marks its lowest point since March 2022 as cost of imported raw materials decreased but the number came in higher than market expectations. "[BoJ] Governor Kazuo Ueda has expressed confidence of anchoring inflation above the government’s target of 2% and inflation reading is expected to pick up in February as the impact from the government’s price relief measures fades on a year-on-year basis, boosting market expectations that the BOJ is nearing the end of its ultra-loose monetary policy soon," Malaysia-based HongLeong Bank said in a research note on Tuesday. The sharp depreciation of the yen has caused Japan's import bill to soar. At 03:45 GMT, the yen was trading at Y150.48 against the US dollar, down by more than 6% from the start of the year. Source: xe.com Japan relies significantly on imported crude oil as it lacks substantial domestic production. About 80-90% of its crude oil imports are sourced from the Middle East, according to the International Energy Agency (IEA). While the country’s domestic refineries can satisfy demand for transportation fuels, it imports liquefied petroleum gas (LPG) and naphtha heavily as domestic production does not meet the required levels. ALL EYES ON BOJ The BoJ is widely expected to end its negative interest policy, introduced in January 2016, by April this year. The policy was kept for years to stimulate credit growth and investment, in the central bank’s fight against deflation. In its latest meeting in January, the central bank kept its benchmark interest rate at -0.1%, but its quarterly economic report hinted at possible policy normalisation. For the whole of 2023, Japan’s consumer inflation posted an annualized average of 3.1%, up from the previous year’s 2.3% average and the highest recorded since 1982, because of the weaker yen, which made imports more expensive. Despite BoJ officials' confidence in hitting the 2% inflation target, recent data undermines this view following two consecutive quarters of GDP contraction due to weak consumption. Japan’s economy shrank by an annualised rate of 0.4% in the fourth quarter of 2023, following a 2.9% contraction in the July-September period. For the whole of 2023, it posted a 1.9% growth. Because of the recession in the second half of last year, the country was overtaken by Germany as the third-biggest economy in the world. "The challenging growth outlook for Japan adds further risk to a delay to our projected timeline for BOJ normalisation in 2024," Singapore-based UOB Global Economics & Markets Research said. "That said, we still expect BOJ’s normalisation to commence only after 2024’s Shunto Spring wage negotiations between major corporations and unions which takes place around March," it added. Shunto is the Japanese term for “spring wage offensive”. The season, which is typically between February and April, refers to a period when thousands of Japanese labor unions simultaneously negotiate wages and working conditions with their employers. Focus article by Nurluqman Suratman Thumbnail image: Large container cranes stand at a port in Tokyo, Japan on 15 February 2024. (FRANCK ROBICHON/EPA-EFE/Shutterstock)

27-Feb-2024

SINGAPORE (ICIS)–Asia's petrochemical markets will closely watch China's demand signals after the Lunar New Year holiday amid ongoing concerns about the country’s economic health. Asia markets eye China's post-holiday demand signals China's economic health remains central concern Prices likely to rise amid supply constraints Markets in Asia took a breather in the week of 12-16 February, with Lunar New Year holidays in China, Taiwan, Malaysia and Singapore, while countries such as South Korea, Japan and Indonesia observed public holidays as well. Market participants are cautious about the post-holiday market; while some downstream buyers will restock after the holidays, there is concern that existing inventory held by domestic China producers and distributors will largely satisfy demand until early March. PRICES LIKELY TO RISE AMID SUPPLY CONSTRAINTSPetrochemical prices in Asia are expected to continue to increase in February, supported by capacity losses from outages and run-rate reductions, according to ICIS analysts. Among the 31 major petrochemical commodities covered by the ICIS Asia Price Forecast, average February prices for at least 22 of these commodities are anticipated to increase. Ethylene (C2), butadiene (BD) and styrene butadiene rubber (SBR) are expected to lead in terms of gains. In Asia’s C2 market, end-users who have yet to settle March arrival cargo are expected to hit the ground running once most of players return to the market this week. In the southeast Asia C2 market, demand enquiries were largely heard from Thailand last week, while other end-users in Indonesia have begun to look towards the April window for spot cargo. "The Asia C2 industry is likely to be characterised by tight supply in the weeks to come," said Paolo Scafetta, ICIS senior olefins analyst. "February should see about 7% of total monthly nameplate capacity lost due to downtime unless unplanned events cause further technical hiccups." The upstream naphtha market in Asia should be influenced by a few bearish factors, Scafetta added. These include the shift from naphtha to liquefied petroleum gas (LPG) as an alternative cracking feedstock and an improvement in supply from March as naphtha cargoes are expected to increase as Middle East refineries return from their maintenance. Asia's naphtha market is likely to be plagued with volatility in the short term as tensions in the Red Sea will continue to disrupt supplies. In Asia’s propylene (C3) market, trade was largely subdued during the Lunar New Year break but picked up towards the close of the week with most market players, except China, returning from their holiday. Talks and discussions in Taiwan commenced at the end of the week after the holidays ended. However, the post-holiday buying sentiment weakened on the back of ample supply, leading sellers to progressively lower their offers and selling indications. With buyers in China largely away from the market, overall business activity during the week was muted. In southeast Asia, while demand was also heard in Malaysia and Indonesia, most buyers continued to hold back from purchases on the expectation that supply tightness might result in an easing in offers down the road. In Asia’s benzene market, post-holiday restocking is expected to pick up in the second half of February amid strong competition for April and May cargoes from global players. February and March benzene cargoes have been already sold out and April cargoes are in strong demand. Benzene buyers based in both Asia and the West had actively sought procurement since end-January, for pre-holiday and pre-summer stocking up respectively. Asia's acetone market looks poised to maintain its strength. This is due to the high prices of benzene, reduced production leading to tighter supply, and a resurgence in trading flows between Asia and the West. A significant increase in demand for Asia acetone from the US market is bolstering this trend. Limited supply in the US, a result of low phenol production and ongoing allocations, is driving this demand. Meanwhile, supply within Asia is also constrained as phenol/acetone producers scale back production in response to unprofitable margins and decreased demand for phenol in China. In the xylene markets, further support in the market will be dependent on downstream sectors after the Lunar New Year holidays, with eyes firmly on China. For paraxylene (PX), there remains optimism for gasoline-blending demand heading into the second quarter, with positive arbitrage window economics for exports to the West. Firm upstream naphtha prices have also provided some support for PX. Several market participants noted there had been pre-buying of mixed xylenes (MX) and toluene by gasoline blenders to the US. Demand and price developments in the downstream purified terephthalic acid (PTA) and polyester sectors will help provide clarity about whether high PX costs can be absorbed down the chain. Asia's butyl acetate (butac) and ethyl acetate (etac) markets are poised to stay afloat on anticipated post-holiday demand, albeit at a gradual pace. Sellers of butac in both China and the region largely maintained their spot offers for March loading prior to the Lunar New Year holiday. Spot butac prices were on a downtrend in the early part of the fourth quarter of 2023 and have climbed since December, in part driven by cost pressures upstream as suppliers worked towards mitigating compressed margins. Asia’s methylene chloride (MEC) market might be bullish after the Lunar New Year holiday, as rising demand is likely to shift the market to a more balanced state. Most buyers were in a wait-and-see mode, monitoring prices and observing what producers would offer after the Lunar New Year break, with market participants in southeast Asia eyeing a rebound in demand through Q2, around the Ramadan period. CHINA'S ECONOMIC HEALTH IN FOCUS ICIS analysts expect most of China's end-use consumption, including in industries such as agriculture and home appliances, to recover from March. The China government's Two Sessions policy meetings, widely seen as the most important political meeting of the year for the country, will be held on 4-11 March. ICIS analysts expect another series of policies to be introduced to stimulate economic growth. Further market and infrastructure investment can boost petrochemicals demand. Latest official data from China is pointing to some recovery from domestic tourism trips and revenues. Domestic tourism trips and revenues during the Lunar New Year holidays in China jumped by 34.3% and 47.3% year on year respectively, with their levels at 19.0% and 7.7% above pre-pandemic levels in 2019, data from the country’s Ministry of Culture and Tourism (MCT) shows. "Most official and private media channels have been reporting strong (or even exceptionally strong) Lunar New Year holiday consumption data, and markets risk getting caught up in the euphoria of the moment, under the supposition that China’s economy is suddenly bottoming out, driven by the Chinese people’s hidden passion for spending," research analysts from Japan's Nomura Global Markets Research said in a note. "Although we do see some strength in the data, we urge market participants to exercise caution," it said, adding that China's property sector continued its downward spiral, right before the Lunar New Year holiday, and there was no sign of a recovery during the holiday. "Despite the positive [Lunar New Year] data, we maintain our view that the ongoing economic dip is likely to worsen into the spring," Nomura said. With additional reporting by Josh Quah, Julia Tan, Seng Li Peng, Angeline Soh, Helen Lee, Keven Zhang, Melanie Wee and Samuel Wong Focus article by Nurluqman Suratman Thumbnail photo: Lunar New Year lanterns in Shenyang, northeast China's Liaoning Province, on 1 February 2021. Asia will closely watch China's demand signals after the Lunar New Year holiday amid concerns about the country’s economic health. (Source: Xinhua/Shutterstock)

19-Feb-2024

SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson. Global polyolefins markets are such that the old phrases we use have become "Doublespeak", hiding real meanings. For example, recent mentions of "tight markets" on the Red Sea crisis and a wave of shutdowns should be read as "slightly less long markets". Stick with the data which always gives you the true perspective: Global polyethylene (PE) capacity exceeding demand is forecast to average 26m tonnes a year in 2024-2030, according to the ICIS Supply & Demand Database. This compares with just 7m tonnes a year in 1993-2023 (1993 marked the start of “China’s economic miracle”). Global polypropylene (PP) capacity exceeding demand is forecast to average 24m tonnes a year in 2024-2030 versus 6m tonnes a year in 1993-2023. So far in 2024, average NEA PE integrated variable cost margins have fallen to minus 27 under the blog's new margins index, a record low. NEA integrated naphtha-based variable cost PP margins have so far this year been at minus 28 in another new index, equalling the previous record low in 2022. The average China CFR PE price spread – weighted for the different grades – over CFR Japan naphtha costs has fallen to just $73/tonne so far this year, the lowest since our price assessments began in 1993. And while you stick with the data, remember this essential context: China's economy is undergoing a long-term structural slowdown. Get used to it and come to us for advice about what you should do next. Editor’s note: This blog post is an opinion piece. The views expressed are those of the author, and do not necessarily represent those of ICIS.

16-Feb-2024

HOUSTON (ICIS)–US chemical producers should continue to benefit from natural gas selling at historically low levels, a trend that has lowered feedstock costs just as their foreign competitors are paying more for oil-based material. For the most part, US feedstock costs tend to follow those for natural gas, while those for much of the world follow prices for oil. Right now, US producers are enjoying a sweet spot of elevated oil prices and falling gas prices Low gas prices do not reflect the US president's attempt to pause new LNG permits, since the nation's export capacity is due to double by the end of 2027 for projects that fall outside of the scope of the pause Henry Hub futures do not break $2/MMBtu until July, after which they gradually rise because of summer cooling demand, restocking for winter and the imminent start up of three new LNG export plants in 2025 LOW GAS PRICESUS spot prices for natural gas at Henry Hub are unusually low for the winter. On Wednesday, they closed just above $1.60/MMBtu. Outside of the COVID pandemic, the last time they dipped below $2/MMBtu in the winter was in 2016. Before that, the last time that winter time gas prices were below $2/MMBtu was at the turn of the millennium. US CHEMICALS MARGINS SPIKEUS crackers predominantly rely on ethane as a feedstock. Prices for ethane tend to rise and fall with those for natural gas because a certain amount of the material can be burned as fuel. Indeed, US ethane has been trading below 20 cents/gal for several days. By contrast, petrochemical prices tend to rise and fall with those for oil because much of the world relies on naphtha as a feedstock. Brent oil contracts have remained above $75/bbl since late December. The recent combination of elevated oil prices and low gas prices have increased US contract margins for ethylene, according to ICIS. These rose to $524/tonne for the week ending on 9 February. With the exception of a single week in 2023, US contract margins for ethylene have not been this high since April 2022, according to ICIS. At that time, Brent crude futures contracts exceeded $100/bbl, and prices for natural gas were above $5.50/MMBtu. FAVORABLE ETHANE COSTSUS producers know a good deal when they see it. Many of their crackers have the flexibility to consume different feedstock, and they are overwhelmingly favoring ethane over all others. More than 85% of the ethylene produced in the US uses ethane as a feedstock, according to the latest figures from the American Fuel & Petrochemical Manufacturers (AFPM). Cracking ethane maximizes ethylene production. If ethane cracking remains favorable, that will increase production of ethylene. OUTLOOK FOR ETHANEAs low as ethane prices are right now, they have room to fall further. Ethane can be used as a chemical feedstock or burned as a fuel. Right now, the fuel value of ethane is about 11 cents/gal based on spot prices at the Henry Hub. The fuel value is even lower at other natural gas hubs such as the Houston Ship Channel and Waha hub in the Permian basin in western Texas. As long as ethane sells at a meaningful premium above its fuel value, the market will have an incentive to recover the material instead of selling at a significant discount to the fuel system. Even if the ethane ends up in storage, it is worth more than ending up as fuel. Already, US ethane inventories are well above the five-year average because companies have such a large incentive to recover the material. If the trend continues, the US will run out of ethane storage capacity. Prices for ethane would fall. OUTLOOK FOR NATURAL GASThe factors that are dragging down natural gas prices should continue through the first half of 2024. Temperatures remain seasonally mild, which have depressed heating demand. US production of natural gas remains high because much of it is produced as associated gas from oil wells. Prices for oil remain high enough to support crude production. Many of these oil wells are in shale basins, so their ratio of gas to oil production increases over time. As temperatures become warmer, more US consumers will rely on air conditioners to stay cool, and that will increase demand for gas-fuelled power generation. Further out in 2025, companies will begin operations at new LNG export plants. The following three new LNG projects should begin operations that year. Figures are in millions of tonnes/year. Project Name Developer Project Capacity Corpus Christi Stage 3 Cheniere 10 Golden Pass NG Exxon/QatarEnergy 15.6 Plaquemines LNG Venture Global 20 Source: ICIS LNG Edge These projects will start up regardless of the fate of the proposed halt in new LNG projects by US President Joe Biden. The projects had already received all of their approvals prior to the proposal, so they will begin operations regardless of whether the US adopts the pause. Another two LNG projects should start in 2027, as shown below. Figures are in millions of tonnes/year. Project Name Developer Project Capacity Rio Grande LNG Phase 1 NextDecade 17.6 Port Arthur LNG Sempra 13 Source: ICIS LNG Edge Insight by Al Greenwood Thumbnail shows natural gas. Image by Shutterstock.

15-Feb-2024