Asian petrochemicals outlook

Supply and demand factors, US-China trade tensions and the depreciation of the Chinese yuan would determine the performance of Asian petrochemical markets this week. Paraxylene, benzene and propylene could continue to find support from strong demand and thinning supply, but the US-China trade war and currency fluctuations could affect downstream demand and margins for polymers.

Given the tightness in September supply as South Korean Hanwha Total's No. 2 aromatics facility at Daesan heads into an unscheduled two-week turnaround from the start of September, some traders expected a further widening in the September/October spread from $7.50/mt last Friday. Asian PX prices on Friday have already jumped $11/mt week on week amid strong prompt buying fueled by crimped supply for September.

Benzene was expected to remain supported by improving demand from Chinese end-users, as the price spread between domestic cargoes on an import parity basis and CFR China cargoes narrowed. The narrowing spread was attributed to a weak yuan, which had earlier resulted in higher prices for domestic cargoes. A drawdown in East China's inventory levels also buoyed sentiment. Stocks in eastern China were heard to have fallen 9,000 mt over the week to 222,000 mt last Friday, as consumption of 15,000 mt outstripped 6,000 mt of arrivals.

OLEFINS

Strong Chinese demand was expected to continue keeping Asia's propylene market supported. Domestic supply in China was seen as tight because of turnarounds at several plants. Jiangsu Shenghong plans to shut its methanol-to-olefin unit and downstream plants on July 20 for a major maintenance lasting 35-40 days. Other than this, sources also expected more turnarounds at propane dehydrogenation plants in China.

Meanwhile, demand in the Asian butadiene market was likely to remain firm from South Korea as buyers were looking to secure cargoes for end-August to early September delivery ahead of planned maintenance shutdowns in the country.

But in other markets, demand was expected to be muted as downstream synthetic rubber makers continued to face negative margins from higher raw material butadiene costs and had taken to selling their butadiene inventory instead to make a profit.

POLYMERS

In the Asian low density polyethylene market, downstream demand was expected to be impacted by the US-China trade tensions. While market sources said so far there was no clear impact as the US tariffs against Chinese goods did not directly involve polyethylene but were mainly for finished products made out of the resin, some converters with plans to expand were putting off purchasing resin and machines from the US in view of the trade war.

The seasonal demand lull continued to put a cap on the Asian high density polyethylene market. The currency fluctuations would likely result in changes in buying patterns, with many distributors and converters opting for hold-over quantities rather than large inventories. Some end-users in China are heard negotiating with sellers for a fixed forward yuan exchange with the US dollar, so as to lock in their purchasing costs.