INSIGHT: Pre-holiday Asia petrochemicals mixed on cost pressures, bleak demand outlook

SINGAPORE (ICIS)–Petrochemical markets in Asia are showing a mixed trend ahead of the Lunar New Year holiday, with some product prices rising on a combination of pre-holiday restocking and supply constraints despite general weakness in underlying demand.

• Red Sea crisis weighs on business decisions amid rising freight costs
• Pre-holiday restocking muted in most markets
• Demand recovery post holiday uncertain

Prevailing concerns about the global economic outlook, compounded by rising freight costs and supply chain issues continue to weigh on sentiment.

In China’s domestic market, pre-holiday restocking has been muted overall as downstream buyers fret over high prices of some products.

The Lunar New Year, which falls on 10 February, is celebrated in most parts of northeast and southeast Asia. China will be on holiday for a full week on 10-17 February.

COST PRESSURES DRIVE GAINS
Some markets in Asia are experiencing an uptick in activity ahead of the holiday amid tight supply conditions.

For ethyl acetate (etac), spot negotiations have surged along with market activity as end-users stock up on feedstock.

The demand spike, particularly in northeast and southeast Asia, was triggered by concerns over limited vessel space and higher freight costs which were causing delays in cargo deliveries.

“The tightness of vessel [availability] becomes a common problem for liquid chemicals at the moment,” said a regional-based market source.

In the benzene market, buyers have been restocking throughout January, with a notable increase in demand compared with the previous year, ICIS analyst Jenny Yi said.

Supply in Asia is expected to be stable amid limited planned turnarounds in the region in the first quarter, Yi said.

In addition, the arbitrage window between Asia and the US has opened given reduced production in North America caused by prevailing frigid temperatures, she added.

In the isocyanates market, demand is strong in India as downstream polyurethane (PU) producers are restocking for methylene diphenyl diisocyanate (MDI) and toluene diisocyanate (TDI to gear up for peak production season in the first few months of the new year.

Import prices are bolstered by tight northeast Asian supply, with major Chinese producers offline for turnarounds.

However, post-Lunar New Year demand remains uncertain, particularly in China and southeast Asia, as downstream PU sector recovery is sluggish.

For polyols, import prices in southeast Asia and India are rising, tracking upstream propylene oxide (PO) gains.

India’s domestic and import prices for polyols are rising on a combination of strong demand and high freight costs. Southeast Asia’s market, on the other hand, is quieter but prices were being supported by higher feedstock cost.

Adjusting polyols prices to match upstream costs is challenging due to weak downstream demand.

In the fatty alcohols market, Chinese buyers have secured their needs until March, leaving Indian buyers more active in the market.

“We sell two or three months forward on a CIF [cost, insurance & freight] basis … and the sudden increase in ocean freight will definitely affect our margins,” an oleochemicals trader said.

HIGH PRICES DAMPEN DEMAND; SUPPLY TIGHT FOR SOME MARKETS
Post-Lunar New Year recovery in demand is uncertain, with little optimism for significant improvement.

For methanol, domestic activity in China was tepid with downstream factories likely to shut weeks ahead of the holiday, while those seeking cargoes face higher prices given low availability of supply in the market.

The country’s methanol imports in January plunged month on month with plants in the Middle East running at reduced rates during the month.

In the plasticizers market, spot import prices in Asia were dragged down by upstream losses and weak buying momentum.

Based on ICIS’ Plasticizers forecast, prices are expected to fall in February as the market activity slows down during the Lunar New Year holiday.

For 2-ethylhexanol (2-EH), import prices in east Asia were stable amid limited discussions due to a lack of available spot material.

Downstream diisononyl phthalate (DINP) spot market is having some support from limited supply of feedstock isononyl alcohol (INA). INA cargo movement from Europe to Asia is being affected by ongoing logistics issues in the Red Sea.

WEAK DOWNSTREAM MARKETS TO PERSIST
For monoethylene glycol (MEG), slowing textile demand ahead of the Lunar New Year could halt the market uptrend.

“Limited restocking activities are seen as buyers and end-users prefer not building high stocks amid concerns on the demand recovery after the holiday. As you know, the global economic outlook seems not rosy,” a regional trader said.

In the recycled polyethylene terephthalate (R-PET) and recycled polyethylene (R-PE) markets, demand for pellets has been tepid as downstream plants still working through backlogs from last year’s purchases.

The recycled polymers market has generally struggled throughout 2023, with trade impacted by poor economics.

In the PE market, initial spot February import offers in southeast Asia were firmer this week as Middle East suppliers flagged reduced spot allocation and low stocks.

Middle East offers to Vietnam – which will celebrate the Lunar New Year from 8-14 February – spiked due to reduced availability of spot export cargoes.

The Red Sea crisis has also likely affected some shipments from Saudi Arabia, but this could not be confirmed with the producers.

Supporting PE demand is downstream application in packaging, which accounts for 60% of total consumption of the material.

“The outlook for packaging is expected to be positive given the anticipation of holiday demand. However, downstream demand destruction in the industry is forecast at 15-20% lower year to date,” ICIS analyst Jincy Varghese said.

For acrylonitrile butadiene rubber (NBR), China’s import prices have softened this week, as more local end-users retreated to wind down and prepare for the holidays.

“The pre-holiday restocking exercise ended just barely weeks after it started,” a regional NBR maker said, adding that “it was so lame, compared to the previous years”.

Insight article by Nurluqman Suratman

With contributions from Melanie Wee, Julia Tan, Izham Ahmad, Helen Yan, Judith Wang, Shannen Ng, Keven Zhang, Arianne Perez and Ai Teng Lim

Thumbnail image: China’s 2024 Year of the Dragon celebrations preparations in Beijing – 25 Jan 2024  (WU HAO/EPA-EFE/Shutterstock)