BLOG: Petrochemical market confusion set to continue as China deflation approaches

SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson. Petrochemical markets have probably never been as opaque with no clarity over what happens next. And as the charts in today’s blog post underlines, market conditions are nothing short of freakish.

How and when will conditions normalise? To what extent are these historically high polyethylene (PE) and polypropylene (PP) price differentials between Europe and China the result of:

1. Tight European supply as a result of lack of refinery feedstock and theoretical arbitrage because of shortages and cost of container freight space, along with unexpectedly strong demand?
2. A slightly weaker Chinese economy and rising Chinese self-sufficiency?

Because we are nowhere close to sufficient demand and supply models that can cope with this volatility, the confusion is just something we have to live with over the short term. But we must start building better models.

One thing is clear, though, in the view of the blog: in one to three years, we will move into a deflationary from an inflationary environment in PE, PP, styrene monomer, ethylene glycols, paraxylene and methanol because of rising Chinese self-sufficiency.

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.