Slow recovery in Asia petrochemical markets; Q4 sentiment bearish

SINGAPORE (ICIS)–Macroeconomic challenges in China have kept overall sentiment bearish in Asia’s petrochemical markets, but there was a late pick-up in demand for some products just days before a week-long holiday in the country in October.

• China fresh economic measures stimulate buying in glycerine market
• Pre-holiday restocking not as strong as expected
• Outlook bearish for aromatics

Initial excitement over China’s new set of economic stimulus appears to be fizzling out based on crude price movement.

At midday, Brent crude was down 21 cents at $74.96/bbl, while US crude was down 26 cents at $71.30/bbl, after gaining by more than $1/bbl overnight.

China’s measures amid doubts about the world’s second-biggest economy’s ability to achieve its 5% GDP growth target followed the US Federal Reserve’s jumbo 50-basis point (bps) cut in interest rates on 18 September.

People’s Bank of China (PBoC) measures announced on 24 September

Source: Oxford Economics/China State Council

“We believe the recent rapid development in both domestic and external conditions were the major driving forces behind the PBoC’s latest move,” Oxford Economics’ lead economist Betty Wang said in a research note.

“Domestically, the weaker-than-expected August economic data suggest that the risk of missing this year’s growth target has grown,” she said.

“Externally, the Fed’s outsized rate cuts last week, along with other major central banks’ entering easing mode, has eased the depreciation pressure on the Chinese Yuan and provided the PBoC more room to ease monetary policy,” Wang added.

Concerns about the economic health of the world’s two biggest economies have been weighing down on sentiment across the equities and commodities markets.

For petrochemicals, a slower-than-expected demand pick-up ahead of China’s October national holidays have further dimmed prospects of market recovery.

Petrochemical demand is typically seasonally strong in September, but pre-holiday restocking in China failed to gain momentum during the month until the government announced on 24 September a basket of measures to boost economic activity.

In Asia’s refined glycerine market, buyers in China were making enquiries for spot cargoes.

Mid-Autumn holidays early last week in China, Taiwan, Japan, and South Korea had also caused temporary pause in market activities.

China’s economy is sputtering amid a property downturn. The sector remained on a slump, with total investments in the industry registering a 10.2% year-on-year decline in January-August 2024, which also weighs down on the construction industry.

Property and construction are main downstream industries for petrochemicals.

Chinese factories were also in contraction mode for the fourth straight month in August, registering official purchasing managers’ index (PMI) readings of below the expansion treshold of 50.

In the polyethylene (PE) pipe market, major suppliers have maintained firm offers to China on recent gains in upstream crude market, while most downstream converters have completed September procurement and were waiting for October offers.

Poor demand had recently sent toluene prices in Asia tumbling to year-to-date lows, while prices of solvents such as ethyl acetate (etac) and butyl acetate (butac) have slumped to multi-year lows.

ICIS analyst Jimmy Zhang expects most petrochemical products to post price declines in September, extending the weakness in August, amid declines in upstream crude prices and the overall bearish sentiment.

ICIS forecasts that 26 out of the 31 products it tracks to post lower average prices this month, led by paraxylene (PX) and purified terephthalic acid (PTA).

Focus article by Jonathan Yee and Pearl Bantillo

Additional reporting from Judith Wang, Melanie Wee and Helen Yan

Thumbnail image: Lianyungang Port in east China’s Jiangsu Province on 18 September 2024 (Shuttertock)