Petrochemicals Special Report
S&P Global Platts Petrochemical Outlook for the 2020. This report contains information about global petrochemical trends in the wake of coronavirus
Global petrochemical trends H2 2020
**Challenges and opportunities in the wake of COVID-19**
Authors: Flavia Alemi, Kevin Allen, Guilherme Baida, Lara Berton, Alexander Borulev, Benjamin Brooks, Emily Burleson, Miguel Cambeiro, Callum Colford, Fumiko Dobashi, Abdulaziz Ehtaiba, Emmanuel Gallegos, Kristen Hays, Heng Hui, Mary Hogan, Gustav Holmvik, Michelle Kim, Sue Koh, Ora Lazic, Chris Liu, Jacquelyn Melinek, Luke Milner, Samar Niazi, Esther Ng, Simon Price, Sarah Schneider, Regina Sher, Eric Su, Astrid Torres, Tess Tseng, Sophia Yao, Melvin Yeo, Stergios Zacharakis, Miranda Zhang
Editorial Leads: Kevin Allen, Anna Crowley, Lara Berton, Benjamin Brooks, Emmanuel Gallegos, Kristen Hays, Luke Milner, Samar Niazi, Philip Reeder, Eric Su
Editors: Jonathan Fox, Keiron Greenhalgh, Norazlina Jumaat, Daniel Lalor, James Leech, Jonathan Loades-Carter, Manish Parashar, Jennifer Pedrick, Richard Rubin, Wendy Wells
Other Contributors: Lenny Rodriguez, Rob Stier, Eshwar Yenningalla
Design & Production: Evelia Gramajo
- China domestic benzene values to be buffeted by global trader moves in H2
- Styrene outlook for US, Europe in H2 hinges on China
- Toluene road to recovery far from clear in H2 2020
- Mixed xylenes fate tied to gasoline demand recovery in H2
- Global paraxylene looks to China for direction in H2
- Asian PTA faces supply glut in H2; upstream markets to drive direction
- Global methanol supply to remain long amid slow recovery
- Supply length and marginal demand increase point to weak H2 for MTBE
- Naphtha more competitive as ethylene feedstock during COVID-19
- Propylene market faces supply challenge from new Asian capacity
- Butadiene market looks set to stay historically weak for rest of year
- Global MEG markets buffeted by crude, COVID-19 demand destruction
- Global PE braces for supply glut, stiffer regional price competition
- Uncertainty, slide in demand leads sentiment into H2 2020 for PP
- PVC demand facing slow climb to pre-pandemic levels in H2 2020
- Global PET markets face bearish H2 2020 sentiment
- ABS and SBR markets to see continued pressure amid tepid demand
- Construction, feedstock supply key drivers for global polystyrene recovery in H2
- Tough times ahead as recycled plastics struggle with sustainability shifts
- Caustic soda could see downturn in H2 after COVID-19 price boost
Global economies are facing greater uncertainty than at any time in living memory. The repercussions of the coronavirus pandemic and the lockdowns introduced to curb it continue to be felt across the petrochemical industry globally, since demand is so closely linked to economic performance.
In its unstoppable trajectory from Asia to Europe and onto the Americas, the pandemic has disrupted traditional demand trends and shifted the usual trade flows.
As oil prices crashed and demand for medical and personal care products soared, parts of the petrochemical industry found new opportunities, while others, tied to sectors harder hit by the pandemic, such as construction and automotive, floundered.
As the industry moves into the second half of 2020, a combination of renewed lockdowns, prolonged recessions and a continuing pandemic presents a bleak image at a time of limited visibility. However, the overall picture is far from clear cut in the multifaceted petrochemical markets.
Aromatics supply and demand dynamics as well as prices hinge upon how the coronavirus pandemic evolves in the second half of the year. Worldwide demand has been dented by global lockdowns, sending aromatics prices tumbling and margins of various aromatics to naphtha south to levels never seen before. In the absence of global demand, traders worldwide have looked to China as a champion consumer of aromatics, while tackling overflowing tankage and plummeting prices in their own territories.
The European and US aromatics markets faced immense pressure during the first half of 2020 as the pandemic decimated demand from the gasoline segment while chemical demand was hurt by poor margins. Going into the latter half of the year, these markets will continue to face challenges. As global lockdowns ease, demand for aromatics should improve, with octane demand lending support to toluene while the xylenes chain will remain heavily influenced by new capacities in Asia as well as an expected PTA supply glut. Products such as methanol will continue to wrestle with global length, despite production cuts and plant start-up delays.
Olefin margins, meanwhile, will be a key area of focus as producers grapple with wild price swings in upstream energy and oil markets. Downstream plastic demand is poised to see an upsurge as lockdown measures across Asia start to ease in the second half of the year and this will boost buying appetite for olefins as well.
In Europe too, the easing of lockdowns and a slow return towards normality has led to signs of renewed demand from industries such as the construction sector.
Prices for construction staple polyvinyl chloride plunged to lows not seen since the global financial crisis of 2008-09 as construction hit a standstill caused by stay-at-home orders. Net PVC importer India’s lengthy shutdown roiled trade flows chasing other shrunken pockets of demand. India’s reopening at the end of May and eased shutdowns elsewhere have fueled a gradual demand rebound, though concern lingers about a second wave of the coronavirus.
Demand for polyethylene has been more resilient given its ties to nondurable consumer goods. Some movements against single-use plastics, such as grocery bag bans, have slowed or been paused as single-use bags were seen as less likely to transmit the coronavirus than reusable ones.
Polypropylene demand rose due to the need for nonwoven fabrics used for medical masks and gowns, as well as takeout food containers as restaurants globally struggle to stay afloat during shutdowns by offering more pickup and delivery. However, that push could not overcome demand destruction from automotive manufacturing shutdowns. While packaging demand and low feedstock prices for upstream olefins and naphtha helped to sustain virgin polymer markets in Europe in the first half of the year, any resulting margin strength for polymer producers may be short lived. With European ethylene prices rising in June and polymer demand remaining tentative, gains appear brittle moving into the second half of the year.
Recycled plastics came under pressure in the low price environment enabled by declines in upstream olefins and naphtha pricing as buyers able to switch away from recycled plastics to cheaper virgin alternatives did so. Meanwhile, shifting consumer patterns amid lockdown measures, which hurt waste collection services, have generated concern over the availability of post-consumer plastics used as the feedstock in recycled markets.
A sustained full recovery to pre-coronavirus demand and economic activity levels remains a distant target given the expected changes to consumer behavior and the slowdown in economic growth, even after countries start to resume usual business activities.
Expectations of ample supply from high petrochemical inventories and additional production facilities will also pose headwinds to recovery going forward.
— Luke Milner, Samar Niazi,
Eric Su, Kristen Hays, Kevin Allen
Methanol & MTBE
Aromatics, Methanol & MTBE
China domestic benzene values to be buffeted by global trader moves in H2
Prices in the Chinese domestic benzene market are likely to be driven by short-term and opportunistic global plays during the second half of 2020, as the COVID-19 pandemic evolves and countries around the world gradually re-open their economies, according to market sources.
The revival of the global economy is very important for the widely used petrochemical, which relies heavily on inter-regional trading, with North Asian and European supply relying heavily on demand from China and the US Gulf Coast.
As different regions recover at different rates, traders are likely to buy and sell in a more opportunistic fashion, with previously established trade flows no longer viable.
China's intercity borders re-opened in the first week of April, after which prices of domestically traded benzene soared in anticipation of a demand recovery, as traders sought to deliver benzene into the country’s limited commercial tanks.
European cargoes and displaced Asian supply, which would otherwise have been US-bound, began to flood the CFR China market, resulting in an open arbitrage between CFR China and domestic East China prices. The difficult storage situation was further exacerbated since available East China storage space is concentrated in the hands of just a few players, as trading houses tighten counterparty credit requirements in a volatile landscape.
Market sentiment is split over whether the domestic-import arbitrage is sustainable going into H2 2020. While an increase in operating rates and an improvement in downstream margins looks promising, an inability to export end-products could eventually result in a price plateau once domestic demand is satisfied.
If US demand does not recover, supply will continue to flood the CFR China market, keeping CFR China prices depressed compared to domestic cargoes.
Excess European supply
With the prompt end of the benzene market in Europe straining under heavy supply during April and May, exports will play a key role in rebalancing benzene stocks against demand.
Uncertainty around easing lockdowns across Europe has left demand recovery in question. Benzene demand has been hit by sluggish automotive and construction sectors in the wake of the pandemic which has in turn led to heavily reduced demand for downstream styrenics. Estimates of styrene production run rates had been heard as low as 60% during May, sources said.
At the beginning of May, European benzene prices were lower than US and Asian values, creating the potential for the arbitrage of European product to other areas and prompting Middle Eastern exporters to turn away from Europe due to the low prices.
If I wanted to sell spot, I wouldn’t do it into Europe for sure
One producer said
Flow toward Europe had been limited to contractual volumes only, he added. Demand would need to recover first to attract more material, and for the moment spot cargoes would be focused on the improving Chinese market.
Benzene imports were expected to pick up this year, with one producer pegging US import demand at 150,000 mt/month. Imports surpassed that number in April, when nearly 200,000 mt of benzene landed in the US — the delayed impact from China’s initial coronavirus shutdown in early February, which led South Korean and Japanese producers to divert cargoes westward.
Whether imports continue at such a rate in H2 is unlikely if the FOB Korea benchmark remains priced above DDP USG benzene, as was the case in spring. Imports are expected to decline in July and August because major exporting regions diverted cargoes elsewhere with US benzene the cheapest globally.
In July alone, demand for benzene in the US is expected to rise about 40,000 mt to 750,000 mt, according to S&P Global Platts Analytics. The operating rates of styrene producers should determine whether that trend holds. Participants expect demand for styrene to be healthier in H2 as automakers and construction work resumes.
Supply length in Asia will be a key factor determining the fate of the FOB Korea benchmark, with producers potentially adjusting rates in reaction to key aromatics spreads, including benzene-naphtha and paraxylene-naphtha. While key exporting countries in North Asia have successfully completed annual maintenance in H1, several turnarounds in Southeast Asia earlier scheduled in H1 2020 have been postponed to H2 amid lockdowns.
Furthermore, new capacity slated to start up in H2 in Asia includes Saudi Aramco’s Jazan refinery and Sinochem’s Quanzhou unit among others, totaling just over 1 million mt/year of capacity.
Over in the US supply of benzene in H2 2020 will depend on a number of factors, including gasoline demand, the economics of STDP and TDP units, cracker operating rates and feedstock pricing. Lower spot prices of one benzene feedstock could create an opposite effect on others, leading to a complicated balance of supply.
— Tess Tseng, Simon Price, Emily Burleson
Styrene outlook for US, Europe in H2 hinges on China
Demand recovers in China as COVID-19 restrictions ease
But demand in Europe, US expected to remain weak in H2
China's increasing demand for styrene as COVID-19 restrictions ease at a time when fundamentals remain weak in Europe and the US is likely to continue driving cargoes east in the second half of the year, but challenges loom as a slate of new domestic capacity is due to come online in China in H2.
Demand in Europe and the US is expected to remain weak in H2 as downturns in the automobile and construction sectors have been only partially offset by enhanced demand from single-use plastics, and styrene producers in both markets are now actively looking to China for buyers.
However, while the revival in demand from Chinese importers supplying domestic downstream industries is likely to boost liquidity amid an open arbitrage between CFR China and domestic cargoes, it is clear the Asian styrene market is already grappling with high inventory and ample supply.
In addition, new Chinese integrated producers that started operating in the first quarter should stabilize production by H2 and even run at full capacity, adding further length to the styrene market.
Despite the delay in the startup of CNOOC-Shell’s 700,000 mt/year styrene plant in Huizhou to the first half of 2021 from the fourth quarter of 2020, oversupply remains a key concern in Asia, with Tangshan Xuyang Chemical’s 500,000 mt/year unit, Baolai Chemical’s 350,000 mt/year unit and Anhui Jiaxi’s 350,000 mt/year unit all starting up in China in H2.
The heavy Asian plant maintenance season in early 2020 has also largely ended, which will add additional length. Arbitrage windows from Europe and the US to Asia re-opened in the second quarter due to the collapse of FOB USG and FOB ARA prices, even after the concurrent rise in freight rates was factored in. “As long as CFR China prices are lower than import parity prices, China’s styrene intake won’t decrease a lot, even as domestic supplies are increasing,” a trader said.
The open arbitrage is set to fuel a flurry of deepsea cargo arrivals in east China in June and July and result in a further inventory buildup in shore tanks. East China inventory levels hit a record high of 324,000 mt in the second week of March and remained above 270,000 mt in May as the global COVID-19 pandemic slashed demand. Market participants expect inventory levels to remain high for some time, keeping CFR China prices under sustained pressure.
US margins widen
In the US, the gradual easing of COVID-19 lockdown restrictions should support domestic styrene demand and lead to a recovery in pricing in H2, market sources said. US styrene monomer prices plunged below even the weakest expectations of many market participants in Q1 to record multiple new lows before bottoming at $375/mt FOB USG on March 23.
Styrene production at US plants was estimated at around 75% of nameplate capacity in early May and was expected to increase in line with the recovery in global demand.
Volatile benzene and styrene prices created wide swings in US styrene production margins in Q2. Weak margins that hovered in the low $60s/mt in December turned negative in mid-February for plants utilizing spot benzene, according to S&P Global Platts data. By April however, Asian demand had lifted spot styrene prices and divorced them somewhat from benzene values, widening the margin to $195/mt. The spread stood at $201/mt on May 22, Platts data showed.
US demand for styrene derivatives is also expected to pick up in H2, market participants said. While polystyrene demand has risen in H1 on the increased use of styrofoam take-away food containers, demand for expanded polystyrene fell as construction projects slowed, and for acrylonitrile-butadiene-styrene tumbled as automakers halted assembly lines, due to COVID-19 lockdowns.
If the domestic car manufacturing and construction sectors were to recover in H2, styrene demand should follow, market participants said. However, the 1.2 million mt Chinese styrene production capacity that is expected to come online in 2020 may still have the knock-on effect of causing a styrene supply glut in the US, sources said.
Pressure in Europe
The primary driver of European styrene prices in H2 will be the rate at which COVID-19 lockdown measures are eased, after prices hit historic lows in March at the peak of the demand destruction. Lower prices propelled a return to positive margins for styrene over feedstock benzene to just below the $250/mt mark, which the market considers a healthy spread.
However the slowdown of the automotive and construction sectors has had an immense impact on demand, with styrene butadiene rubber used in tire manufacturing and expanded polystyrene for home insulation, especially Germany and France.
Although several European governments are tentatively easing social distancing measures as summer approaches, some measures are expected to continue into Q3 and even Q4, maintaining pressure on demand. The market will continue to operate on a hand-to-mouth basis until the coronavirus pandemic passes, a European trader said.
Styrene consumers shifted to more spot buying and reduced reliance on contractual volumes in 2019, reducing demand and leaving the European market in an overly long position, and struggling to find outlets for its surplus, even before COVID-19 emerged. Without an arbitrage to Asia, European supply promises to remain long throughout 2020, market sources said.
— Sophia Yao, Simon Price, Emily Burleson
Toluene road to recovery far from clear in H2 2020
Global toluene supply and demand balances are expected to remain under pressure during the latter half of 2020 due to lower operating rates and reduced demand amid the ongoing coronavirus pandemic.
Weaker pricing in benzene and derivative styrene markets, as well as soft paraxylene prices, dented chemical demand for toluene during much of the first half of the year. However, while weaker aromatics pricing is expected to persist in the second half, demand for higher-octane toluene in summer and lower product availability due to refinery run cuts may give some upside to the market.
Blending economics to drive balances
In the US market, Selective Toluene Disproportionation unit margins, have been in negative territory more often than not over the past 12 months. With little demand from toluene conversion units, octane demand will drive pricing despite weaker blend values to finish the first half of the year.
According to sources, demand from the blending segment will be contingent upon the length of time required to burn through higher gasoline inventories and an overall economic recovery. Sources in the US have forecast steady improvement throughout the second half of the year.
With COVID-19 having spread to the US, however, market participants in Asia have mostly written off the summer-driving season and are said to be scouring for other demand centers, notably China.
Gasoline blending activities within Asia, ex-China, are still thinly slated as government lockdowns enforced to curb the spread of COVID-19 has placed barricades to road fuel needs. Previously, market participants ballparked the US summer driving season, which typically starts in May, to be the driving factor that would spur interest in gasoline blending.
Operating rate drops present opportunityIn Europe, expectations surrounding the post-lockdown market response are more optimistic, with some participants hoping to see "an ideal market situation" as renewed demand meets limited production capacity availability.
"Most likely when we all come out of lockdown, the demand will come into the market with the limited production capacity availability," said a trader on May 1, adding:
People who were not allowed to consume for two months will come [to the market] and consume…this will create a peak that will be met with very limited capacity.
Some European refineries that were unable to postpone necessary shutdowns until later this year are in the middle of the turnarounds, and will not be able to react to booming post-lockdown demand, said market sources.
US toluene prices will also see some support from lower refinery run rates, sources have said. Refinery utilization rates have fallen and reformer rates have been impacted accordingly. Extrapolating lower refinery utilization rates down to the reformer and assuming a total toluene capacity of roughly 4.8 million mt from reformate, a 10% reduction in run rates equates to roughly 40,000 mt/month.
This, coupled with expected strong reformate pricing, is expected to bolster toluene prices during the latter half of the year. Sources noted that this could stifle chemical demand if gains in benzene and paraxylene pricing fail to outpace toluene.
Renewed demand or temporary spike?
Although the European aromatics market witnessed a rally in prices on the back of stronger crude oil prices in May, consensus among market sources remains mixed on how long-lived any additional spike in prices will be.
We will see a peak; price, profits and conversion margins will go up
said a market source
Adding that there is some expectation of increased demand in H2 2020 from consumers after the prolonged stay-at-home period.
Signs of renewed strength have been visible in China, with the market soaking up surplus barrels within and beyond Asia. However, despite the recent strength, questions remain on how sustainable the uptick in China’s demand could be while the rest of Asia and the world at large continue to grapple with COVID-19.
Meanwhile in India, the other strong foothold for Asian demand, the government has rolled out zoning plans to bring businesses in COVID-19 free areas back to life.
Some importers have already secured toluene cargoes to be brought into the country for early July in expectation that India's demand could progressively recover as the economy reopens.
With the two major Asian import hubs broadly offsetting each other in demand, the global market faces mixed fundamentals for the third and fourth quarters. Add to it the possibility of a global economic recession ahead, and the road to recovery seems far from clear.
— Kevin Allen, Alexander Borulev, Sue Koh
Mixed xylenes fate tied to gasoline demand recovery in H2
Paraxylene in abundant supply amid new global capacity additions
Asia gasoline demand contingent on low crude oil, lifting of lockdowns
Global mixed xylene prices are expected to see continued pressure in the second half of 2020 amid expected weakness in the downstream paraxylene segment.
The xylenes chain has struggled amid protracted supply length in the US and Asia, and this has been further exacerbated by demand loss caused by the coronavirus pandemic.
Support for the mixed xylenes segment in H2 2020 is expected to come from supply constraints associated with lower refinery utilization rates and as countries move away from lockdown measures leading to increased aromatics demand as gasoline blending component.
PX glut threatens MX demand
In China, new PX capacity of at least 1.8 million mt/year is expected to start up this year. These new units, Sinochem Quanzhou and shandong Dongying, are likely to consume their MX captively going forward, instead of selling it in the domestic market. However, additional PX capacity may exacerbate the glut in the PX market and further deteriorate production margins.
It remains to be seen if new purified terephthalic acid plants slated to start up in the second half of the year in China can lend some support to paraxylene prices and margins.
A 1.8 million mt/year reforming unit at Sinopec’s Zhongke refinery in Guangdong, is expected to start up in the third quarter, adding around 400,000-500,000 mt/year of new MX capacity in China.
In the US, demand from paraxylene is also expected to remain subdued for much of the year on the back of global length, as well as on imports. However in Europe, lower output rates in refineries has instead kept the mixed xylene market balanced to tight despite the coronavirus-led reduction in demand.
Overall, the factors that drive the xylenes market will likely be tied heavily to the recovery of the global economy. Demand from the downstream PET segment, but also gasoline octane demand, will be heavily influenced by the economic security and spending habits of individuals.
Most likely when we all come out of lockdown, the demand will come into the market with the limited production capacity availability
European trader, early May
While reduced production rates have provided some support to European mixed xylenes prices after initial gasoline-led losses, market sources see the demand side as key to any potential uplift in the balance of the year.
Sources expect an upturn in Europe only if strong demand drivers emerge. With blending values being viewed as a price floor, these demand drivers should come from the chemical sector.
Increased aromatics into gasoline blending after lifting of lockdowns
The fate of European mixed xylenes will also be reliant on the transition of countries away from lockdown measures and subsequent pick up in gasoline blending activity. Weak conversion margins since the start of the year, has already shifted the dependence of the MX market to the gasoline blending segment, with market participants now looking to inventories in the region for sign of additional demand.
With the growing levels of gasoline inventories in the Amsterdam-Rotterdam-Antwerp hub in May, it will likely take time to deplete the exciting gasoline before the demand for blending components will kick in at the full extent.
Mixed xylenes traders in the US will also be looking to gasoline for pricing support. Refiners began to cut rates in Q1 as gasoline inventories swollen to near record-levels and rates fell to as low as 67.7% in mid-April.
Those rate reductions helped to lend support to mixed xylenes prices and that trend is expected to continue into the second half of the year. While such a move would bolster pricing, it could also keep the PX-MX spread low and result in poor economics for paraxylene producers running crystallization units.
Another drawback to potential higher pricing due to refinery cuts is a negative impact on arbitrage economics. Though mixed xylenes exports out of the US are not as significant as some other petrochemicals, their importance increases once demand becomes confined sole to the gasoline blending segment.
Finally, low crude oil prices may support China's appetite for isomer-MX imports into gasoline blending, similar to the trend seen in the first half of the year when China saw strong demand for MX imports, market sources said in early May.
"If this low crude oil price continues until end of this year, MX demand from China will keep strong as gasoline blending value will be high," a Northeast Asian end-user predicted. "But if crude price returns to over $40-$50/b, the supply of MX will be more than demand and MX will be weak."
— Gustav Inge Holmvik, Alexander Borulev,
Global paraxylene looks to China for direction in H2
The second half of 2020 holds many questions for the global paraxylene market as participants juggle with uncertain demand in the wake of the coronavirus pandemic, high levels of inventories and oversupply from new Asian capacities.
The world is looking to China, the world's biggest paraxylene buyer, to chart the course for the next half of 2020.
New normal in Asian prices
Asian paraxylene players are uncertain of what the second half of 2020 will hold, but hope for a rebound in buying appetites after prices slumped to fresh lows in April. The COVID-19 pandemic had caused the CFR Taiwan/China paraxylene marker to collapse to a record low $432.50/mt on April 22, plunging 48% since the start of the year.
But the situation is fast evolving with negative changes in the paraxylene-naphtha spread causing Asian producers to question their operating rates. On May 27, the paraxylene-naphtha spread narrowed to a new low of $173.795/mt, not seen for at least 10 years, market sources said.
It is too uncertain to tell where the market is heading to in the second half of the year considering the lack of short-term directional clarity. Any news that may or may not be related to the polyester chain could have an impact on PX now.
an Asian PX source said
Its recovery is no longer solely [dependent] on the polyester chain following the demand disruption," an Asian PX source said.
With margins at unprecedented lows, the risk of run cuts or even the shutdown of PX plants loom on the horizon. This could mean that the stage is set for a gradual recovery in H2.
The PX market will begin to improve from here especially after the worldwide lockdowns ease, alleviating the present logistical difficulties. Demand will pick up, gradually, and inventory levels will fall
an Asian producer said
The heightened volatility in energy markets drove paraxylene players to hedge their risk exposures, with the volume of paraxylene derivatives traded on the Singapore Exchange over January-April, surging 62% on the year to over 2 million mt, the SGX data showed. The paraxylene derivatives market is likely to remain robust in H2, should volatility in both the oil and petrochemical markets persist.
Inventories may return to normal after a while, especially with purified terephthalic acid units operating at relatively stable rates amid decent production margins, market sources said. The pace of demand recovery matters as downstream consumers' buying patterns may change following the COVID-19 pandemic, a Southeast Asian source, who has a bearish market outlook till Q3, said.
However, additional paraxylene capacity slated to start in H2 will increase supply and possibly worsen the already fragile supply-demand dynamics. New capacity slated to come online include Shandong Dongying Petrochemical's 1 million mt/year plant, Sinochem Quanzhou's 800,000 mt/year unit and Aramco Jazan's 850,000 mt/year plant, whose start had been delayed since early 2020.
Asian market pressures impact US
US paraxylene production has been hit by weak demand and high domestic prices. Weaker gasoline demand in the US has led to lower refinery run rates, which could lower reformer run rates and increase feedstock prices. This would support domestic US paraxylene prices, a trend which could persist into the second half of 2020.
Due to higher domestic US PX prices, there has been an increase in imports, which could also hamper the recovery of the paraxylene market, should volumes continue to flow into the US Atlantic Coast. Paraxylene import volumes into the US averaged just over 35,000 mt in 2019, but this has spiked in 2020 with the average for the first four months at just under 79,500 mt, data from Panjiva, the trade analysis unit of S&P Global Market Intelligence, showed.
But all may not be lost for the US PX market. Several PTA units are expected to come online in H2 and into 2021, with China's Hengli Petrochemical expected to start its 2.5 million mt/year No 5 PTA line in June-July. The paraxylene requirement for this line alone is estimated at over 1.6 million mt. This will likely push Chinese paraxylene prices higher and level the playing field for US paraxylene by easing the global oversupply.
However, after Chinese PTA inventories hit record highs in Q2, managing these inventories, combined with PET demand, will have the greatest impact on global and US paraxylene balances going forward.
Covid-19 rules European demand
Social distancing measures in the wake of the COVID-19 pandemic will continue to depress European paraxylene demand in H2, market participants said. "Buyers are trying to be careful and see how it will go after the release of the lockdown, so we don't see recovery of demand for the moment," a market source said.
The destruction in demand for paraxylene and orthoxylene, driven by lockdowns, has caused European inventories to rise and this trend is unlikely to reverse in the short term, market sources said.
There is no storage capacity for chemicals in the ARA [Amsterdam-Rotterdam-Antwerp] area available in the short term
A market source said
While European paraxylene joined the crude oil price rally over the first full week of May, with FOB ARA prices rising by slightly more than 21% month on month, the demand-supply fundamentals remain unchanged.
European market players see two major drivers for paraxylene over the next couple of months: Asian market fundamentals, led mainly by China, and warmer weather.
Warmer weather during summer, along with the potential easing of lockdown restrictions, could be good news for downstream packaging and bottle industries, and the polyester chain.
— Samar Niazi, Regina Sher, Kevin Allen,
Simon Price, Alexander Borulev
Asian PTA faces supply glut in H2; upstream markets to drive direction
High stock levels, new capacities to lengthen supply
Market participants turn to PX for direction amid uncertainty
Most Asian market participants are taking a bearish view on purified terephthalic acid for the second half of the year, in view of high stock levels, impending new startups and muted expectations over demand recovery after the coronavirus pandemic.
Some market participants, nevertheless, have been wondering if there is still room left for further price declines, given that PTA prices have already hit unprecedented lows.
Asian PTA prices tumbled to a record low of $395/mt CFR China on April 22, and have been hovering around the low-$400s/mt in May.
Prior to March, the PTA CFR China marker had never fallen below $538/mt since S&P Global Platts launched the assessment in April 2008.
High China stock levels to persist, impending startups
Supply-wise, China PTA inventories hit record highs of 3.5 million-3.7 million mt in May, well above the typical level of 1 million-1.5 million mt seen in the past two years.
Such levels are sufficient to cover a month of polyester demand in China and it will take at least a few months to bring stock levels back to normal, on the conditions that polyester demand improves and PTA operating rates decline, sources said.
China-based PTA producers, however, have been maintaining high operating rates of 85-95% since April despite record high inventory levels because of decent PTA margins.
This caused concerns among some producers in Northeast and Southeast Asia as they were forced to cut production in the second quarter due to lackluster demand and less competitive production costs, with the exception of South Korea producers, which mainly targeted European markets for exports.
Cash flow could turn into a major problem for market participants within the polyester value chain if high stock levels for PTA and other commodities along the chain persist, two PTA producers said, adding that it is just a matter of time that rationalizing of production would be required for the industry.
A total of around 7.2 million mt/year of new PTA capacity is also expected to be brought online in China in H2 2020, including 2.5 million mt/year from Hengli Petrochemical in June-July, 2.2 million mt/year from Xinfengming Group Co Ltd in September, and 2.5 million mt/year from Fujian Baihong Group in October, according to market sources.
This will bring the total effective PTA capacity to 59.8 million mt/year in China and 79.8 million mt/year for the whole of Asia by year-end, Platts data shows.
Upstream PX to drive PTA
Despite expectations of weak PTA demand-supply fundamentals extending into H2 2020, several trade participants said the recent key driver of PTA prices has been the price direction of upstream paraxylene and the direction of crude oil, and they are predicting a continuation of this scenario.
PTA fundamentals are not important anymore. The key is that we are unclear about oil
A Chinese trader said
There are too many uncertainties to predict the PTA outlook in H2 2020. [We ] have to see where the PX market goes
Another source said
Subsequently, most US -dollar denominated spot PTA transactions have been discussed on a PX -linked floating formula basis, instead of fixed prices, to minimize risks amid sharp price volatility in upstream markets.
The PTA to PX spread averaged $93.7/mt over January to mid-May, according to Platts data.
— Miranda Zhang, Eric Su
Global methanol supply to remain long amid slow recovery
Global demand still under pressure
China to see more Iranian supply
Europe and the US eye run rates
The global methanol market’s struggle with long supply levels, exacerbated by weaker demand due to the coronavirus pandemic and the recent oil price crash, is expected to continue in the second half of 2020, with only a moderate recovery in demand likely.
With methanol markets worldwide influenced by the price movements of oil, global methanol spot prices reached multi-year lows in the first half of 2020, following significant losses in crude oil values, and any recovery is expected to be slow paced. Fundamentally, little changed during the first half in the key global demand center market, China.
But although the Chinese market remained oversupplied, shortages of tank storage space in the east of the country this year were more acute than previously, with the global COVID-19 containment measures having weakened downstream demand.
As a result, Chinese methanol prices hit 11-year lows in Q2 and, while this should make methanol-to-olefin plants profitable, downstream demand for methylene diphenyl diisocyanate, superplaticizer and formaldehyde have been recovering at a glacial pace, trade sources said.
It is as if the dam upstream has been released and the river has resumed its flow, but the mouth of the sea has not yet opened
A market trader
Only demand for polypropylene to make medical masks has been providing methanol-to-olefins positive margins, hitting a two-year high in Q2, according to S&P Global Platts calculations.
In addition, Chinese methanol prices could come under further pressure in H2 2020 with the start-up of two new methanol plants in Iran.
Middle East Kimiaye Pars Company's 1.65 million mt/year plant commenced operations in May, following on from Bushehr Petrochemical Company's 1.65 million mt/year plant in February, thereby increasing Iranian methanol nameplate capacity to 12.2 million mt/year. Both Kimiaye and Bushehr plan to target China as their main export market, as stricter banking controls in India have made payment to Iranian producers difficult.
India typically imports about 140,000-160,000 mt/month of methanol, with Iranian methanol constituting about 75% of that. But Iranian shipments to India have dropped significantly since February.
Saudi Arabian, Qatari and Omani methanol producers, which were previously priced out of the Indian market, will likely ramp up production to meet that demand, trade sources said.
Run rates under pressure
In the European market, the demand outlook is set to be gloomy at least until the summer as underlying consumption will continue to be affected by the pandemic.
The automotive and construction industries were hit hard in Q2, with the market anticipating a drop in demand from formaldehyde — the largest single outlet for methanol — of some 10-20% below Q2 2019.
Total European methanol demand loss in 2020 is expected to be up to 20% this year, although estimates can vary to a drop of 8-9%, in line with the eurozone’s GDP fall.
Several methanol consumers said they had to reduce consumption, adjusting facilities’ run rates to reflect the drop in demand.
"Demand is on the low side, we are committed to contractual volumes, there is no room to buy from the spot market," a methanol buyer said, adding that spot prices were attractive.
The FOB Rotterdam spot level has been hovering around 40-45% discount to the Q2 contract price at Eur255/mt, significantly above the commercial discounts for 2020, which are around 25-26%.
With signs of recovery to pre-pandemic levels potentially to be seen only towards the end of the third quarter, the market will keep an eye on margins, expecting a drop in methanol production from marginal cost producers operating below cash costs.
The US is unlikely to see any facilities come offline entirely as a result of global markets trying to balance out supply with lagging global demand. The low cost and ready supply of domestic natural gas available as a feedstock have translated into a relatively low cost of production for North American producers.
However, with weaker demand from domestic production of formaldehyde, MTBE and acetic acid, some small declines in US methanol production rates could be seen moving into the second half of the year.
As the US works its way through methanol supply inventories in the face of low demand, the timelines for starting up several new planned production facilities could be extended. Methanex has placed development plans for its Geismar 3 methanol production facility on temporary hold for up to 18 months, and has temporarily idled its Titan plant in Trinidad and its Chile IV plant in Cabo Negro until market conditions and demand improve. A similar decision was taken by Proman in Q2, which idled two units at the Point Lisas Industrial Estate in Trinidad and Tobago. The units affected are M2 and M3, with an annual capacity of 525,000 mt and 575,000 mt, respectively.
— Esther Ng, Mary Hogan, Lara Berton
Supply length and marginal demand increase point to weak H2 for MTBE
Demand set to rebound in Q4
Stocks likely to remain high
Blending margins squeezed
With businesses reopening and car usage increasing, MTBE sellers have been pointing to a likely uptick in demand in the second half of 2020.
However, there are growing signs that the pandemic could lead to changes well beyond the easing of lockdowns. High stock inventories and weak blending demand are expected to remain a mainstay of MTBE in H2 2020.
Sluggish gasoline demand keeps Europe under pressure
European MTBE faces a bleak second half of the year, with high levels of supply carried over after the low call for gasoline resulted in a large drop in blending activity.
The biggest question is the mid- and long-term impact of coronavirus outbreak in the mobility sector in general
a producer said
The FOB Amsterdam-Rotterdam-Antwerp MTBE benchmark was heavily hit by the coronavirus pandemic and dropped below $180/mt in late April for the first time since March 1999, a sharp fall compared with the $779.075/mt averaged in April 2019, hitting production margins.
With the lifting of lockdown measures, demand is only expected to improve in H2.
“We have seen the bottom of the demand level,” another producer said.
European gasoline markets plunged in the first half of the year, but according to S&P Global Platts Analytics demand will increase gradually to reach around 85% of the 2019 level in Q3 2020 and almost at parity to 2019 by Q4. On a positive note for MTBE, gasoline production is expected to reach 80% of 2019 levels in Q3 and 95% in Q4. However, gasoline stock levels increased in H1 and are expected to be almost 17% higher year on year in H2 2020.
A similar pattern is expected in the MTBE market, with high inventories and limited space availability set to be the main challenges.
“[There is] no solution for the storage, the material at some point has to be consumed, production has to be reduced,” a producer said.
When will MTBE production rates return to pre-pandemic levels?
- Q3 of 2020
- Q4 of 2020
- H1 of 2021
- None of the above
Asian remains in the doldrums, glimmer of hope in H2
Asian MTBE is projected to be in the doldrums at least until early Q3 due to the extended and ongoing lockdowns in many countries in the region.
FOB Singapore MTBE nose-dived to a historic low at $165.80/mt on April 22, while the 92 RON crack spread to ICE Brent crude futures, one of key parameters for measuring blending economics, plunged to an all-time low at minus $13.95/b on April 13 and remained in the red as of mid-May. The net monthly MTBE export value in Singapore, the largest gasoline blending hub in Asia, plummeted to a multi-year low of $858,000 in March, down 93% on February, according to the latest data from Enterprise SG.
Market participants said they were expecting Asian MTBE to gradually rebound in late Q2-Q3, with lockdown measures eased, unless major second waves of the virus occurred.
According to Platts Analytics, 92 RON gasoline is expected to bottom out after hitting $15.25/b in May. However, the price will remain lower than that of 2019 through the year-end. Demand-wise, gasoline in seven major Asian countries hit 5.75 million b/d in March, down 14% year on year. However, this is set to recover to above 6 million b/d from July onwards, although this would still be down compared with previous years.
Market players said they were also worried about the aftermath of COVID-19 on global economies.
One market trader said “[MTBE] will be improved from the current situation, but, [price will be] much lower than 2019s”.
A lot of people will be jobless, therefore, the demand for gasoline and blendstock will not be the same level as last year.
One market trader said
The IMF predicted China’s GDP growth rate at 1.2% this year, the slowest in more than four decades, with India at 1.9% and ASEAN 5 at minus 0.6%.
US to see slow recovery as margins improve
The US market also expects a slow rebound in the MTBE price, due to lagging transportation fuel demand from Mexico as well as the country’s renewed focus on domestic refining activities.
US MTBE has also seen prices nosedive, recently hitting their lowest since Platts first began assessing the commodity in 1989, with margins venturing into negative territory in mid-March, pressured lower by coronavirus-related demand destruction in Mexico, a primary destination for US gasoline exports blended with MTBE. Gasoline demand in Mexico dropped to a multi-year low in the week ended April 10, following the halt of all non-essential industrial activity in the country and the implementation of social distancing rules.
Demand for gasoline is expected to rebound once normal economic activities resume, which is likely to begin in stages from around June 1, according to guidance from the Mexican government.
US production of MTBE could be slow to rebound as well, with several regional producers having announced cuts as a result of negative product margins.
Both Enterprise Products and Lyondell Chemical Co., in their Q1 earnings communications, announced lower utilization rates for their MTBE production units amid poor demand and weak margins. Indorama in its Q1 earnings report said its MTBE business had been adversely affected by low margins, although the company gave no further guidance regarding production rates.
— Stergios Zacharakis, Michelle Kim, Mary Hogan
Naphtha more competitive as ethylene feedstock during COVID-19
PODCAST: Rising hygiene products demand and falling naphtha prices present opportunities for petchems
The sharp fall in naphtha values during the coronavirus pandemic has made it more of a competitor to ethane as a feedstock for ethylene production in Asia, Europe and South America
By June, US producers began to see ethane's advantage re-emerge as oil prices showed a slow rebound, but ethylene producers in largely naphtha-dependent regions could maintain competitiveness if crude retreats.
Crude oil staying low will keep ethane prices higher and naphtha leveled up with ethane, removing US cost competitiveness for the time being
a European producer source said
Asian ethane and LPG-fed crackers have seen negative margins on falling naphtha and ethylene prices in the first half of the year.
Asian market participants will be watching for arbitrage opportunities through the rest of the year, as buyers keep term contract volume at minimums for more spot market opportunities. European and US producers were seen as having abundant supply to sell to other regions, though some companies reduced rates across their systems to manage downstream derivative inventories.
Annual US ethylene export capacity had been limited to 300,000 mt before this year, with a single terminal operated by Targa Resources.
Then first-quarter export cargoes rose 62% to 99,648 mt, reflecting the January start-up of Enterprise Products Partners ’ joint-venture terminal in Houston with Navigator Gas, US International Trade Commission data showed. Belgium, Indonesia and Taiwan received 87% of those ethylene flows, USITC data show. The new terminal was expected to reach its 1 million mt/year capacity in the fourth quarter. The US exported 289,107 mt of ethylene in 2019.
Asian crackers were expected to maintain high operating rates through the rest of 2020, assuming economic recovery as lockdowns ease and support from polymer demand.
Increased spot supply was expected after cracker restarts by Malaysia’s Pengerang Integrated Petroleum Complex and South Korea’s Lotte Chemical in July and September, respectively.
Ethylene's long-term low
US spot and contract ethylene prices repeatedly set new lows in the first half as COVID-19 crushed demand.
The spot FD Mont Belvieu price fell to 8 cents/lb for more than a week in April from 22 cents/lb in January, the lowest since S&P Global Platts began assessing it in 2004. The US ethylene contract price hit an all-time low of 20.5 cents/lb in April, but rebounded to 24 cents/lb for May. Spot prices have since rebounded as ethane prices strengthened on oil and gas production cuts. US spot non-LST ethane prices reached a 2020 low in March of 9.25 cents/gal and more than doubled to 22.75 cents/gal by early May.
US light-straight-run naphtha prices, which hit a 2020 high of 133.50 cents/gal in early January, plummeted to 24.25 cents/gal by the end of March and had rebounded to more than 81 cents/gal in early June.
European producers saw similar naphtha price moves. January's average of $527/mt CIF NWE nosedived to a $247/mt average in March and $138/mt in April, a 21-year low, Platts data showed.
European ethylene prices peaked this year at Eur802.50/mt FD NWE late January, and fell 65% by mid-May to Eur278.50/mt FD NWE, its lowest level since Platts began assessing it in 1994.
“Raw materials with feedstocks will start to recover before end of year, but not significantly,” a European market source said.
Companies are also looking at cash flows...which means turnarounds, any such big ticket items, will be postponed.
Asian prices also saw wide swings from late January to late April, with the CFR Northeast Asia marker down 60% and CFR Southeast Asia down 59% to $330/mt. By June prices had sharply rebounded to $805/mt CFR Northeast Asia and $755/mt CFR Southeast Asia after China and India lifted lockdowns.
S&P Global Platts Analytics expects NYMEX WTI crude at $15/b in June, rising to the mid-$20s/b by the fourth quarter and $30/b by Q1 2021. That scenario would maintain naphtha’s advantage through the third quarter and into the fourth.
Bob Patel, CEO of LyondellBasell, said producers with mixed-feed crackers in global networks can switch feedstocks to maximize cost advantages, but there was a catch. Ethane yields the most ethylene of all feedstocks and its derivatives make the world’s most-used plastics. Cheap naphtha may make a lower ethylene yield worth it, but naphtha also yields co-products like butadiene, for which demand has plummeted.
“We will crack liquids up to a point where we can move the butadiene, and I think that has already globally been restricting the amount of naphtha that is being cracked,” Patel said recently. “It will continue to be a constraint through most of this year, especially the disposition of butadiene.”
— Kristen Hays, Ora Lazic, Chris Liu
Propylene market faces supply challenge from new Asian capacity
Improved global demand for propylene in the second half of the year — as countries emerge from lockdowns to tackle COVID-19 — will come at a time of fresh supply challenges from new capacity in Asia.
In Europe, market participants said they expected the pick-up in demand for propylene to be propelled by the resurgence of the automotive and construction industries, which were brought to a standstill in recent months.
Demand from packaging, medical and personal hygiene applications, which was strong throughout the first half, was expected to remain healthy going forward.
In addition to weak demand, significant drops in upstream naphtha prices, which fell around four-fifths in value between January and April, exerted pressure on propylene values in the first half. Polymer grade propylene spot prices FD NWE fell 37% from the beginning of the year, reaching $580/mt on April 30, the lowest level since March 2016.
The near-term expectation was that European steam crackers and fluid catalytic cracking units will continue to operate at reduced run rates despite a favorable naphtha -propylene spread as producers manage their stock levels, which may lead to tighter propylene supplies. The reduction in run rates has mainly affected supply in the inland market, especially for chemical grade, as European refineries have reduced output due to a decline in jet fuel demand.
The fall in European prices has narrowed the spread to US propylene prices, limiting arbitrage opportunities from the US, which could see supply tighten at the coast. A fall in imports will introduce more balance to the supply and demand equation in Europe, easing some pressure off falling prices.
US market sees continued volatility
US propylene market participants anticipated continued volatility for the second half of the year due to supply and demand destruction amid the coronavirus pandemic.
In the first quarter, spot and contract polymer -grade propylene (PGP) prices fell to 11-year lows. Enterprise Products Partners said in the second quarter that construction was underway on its new 750,000 mt/year PDH plant at its Mont Belvieu, Texas, NGL hub, for which LyondellBasell will be the anchor customer.
Refinery-grade propylene (RGP) prices fell to an 18-year low, driven by high refinery utilization rates. Domestic refinery utilization rates were at 82.3% at the time of the 18-year low, according to US Energy Information Administration data.
RGP prices quickly recovered as utilization rates fell to the high 60s%. Rate reductions resulted in the tightening of upstream propane supplies and supply of derivative propylene, which propped up prices.
Higher RGP has also narrowed the spread between PGP and RGP, sources said.
According to a market source, demand will improve when the automotive industry recovers. Recovery, however, may take some time — in anticipation that market conditions will worsen before it improves around Q4, a source said. In H2, heavier feedstock cracking could boost propylene supply and depress prices, other sources said.
Prices faces headwind from new capacity
Asian propylene may receive price support from the expected recovery of demand after countries begin to ease their coronavirus lockdown measures. Gains, however, faces headwind from upcoming start-ups of propane dehydrogenation (PDH) plants in China .
CFR China propylene market declined sharply in H1, sinking to a 4-1/2 year low of $585/mt on April 6, as the COVID-19 pandemic decimated demand for downstream polypropylene.
“We expect propylene prices to rise when consumption improves in H2," a trader in Southeast Asia said.
Some sources, however, said that impending production start-ups in China may add pressure to prices. Three PDH plants and one LPG cracker with a total propylene capacity of over 2.2 million mt/year are expected to come on stream in China during H2.
China's Fujian Meide Petrochemical's 660,000 mt/year and Zhejiang Huahong New Material's 450,000 mt/year PDH plants were due to start up in Q1, but the start-ups were delayed to later this year because of the pandemic.
Oriental Energy is on track to finish building its new 660,000 mt/year PDH plant in Ningbo by H2 June while Yantai Wanhua Chemical is aiming to bring its new LPG cracker online by August.
Conditions in the supply side will be tougher than the buy side as there is too much production coming into the market
a source said
Demand in Southeast Asia, meanwhile, is expected to be resilient as Hyosung Chemical will need to continue procuring propylene for its new 300,000 mt/year PP plant in Vietnam, as its new upstream PDH facility in Vietnam is only expected to come online in Q4.
— Melvin Yeo, Abdulaziz Ehtaiba,
Lara Berton, Astrid Torres
Butadiene market looks set to stay historically weak for rest of year
Podcast: Are petrochemicals stepping into a post-pandemic recovery?
The global butadiene market is expected to remain bearish in much of the second half of 2020, following falling prices in the first half of the year as demand from the automotive industry collapsed.
Asian supply likely to be offset by TAR delays
The Asian butadiene market may remain steady in the second half of 2020, with bearish demand for downstream synthetic rubber potentially offset by delayed butadiene plant turnarounds in China.
Synthetic rubber demand is likely to remain subdued in the second half as weak automotive sales look set to continue. Asia’s largest automotive manufacturer, Toyota Motor Corp., has forecast automobile sales for the 2020 fiscal year at 7 million units, down 22% from 2019.
Several butadiene plant turnarounds in China have been delayed to the second half of the year, largely due to labor shortages and social distancing measures amid the coronavirus pandemic.
For 2020, eight steam crackers with a combined butadiene capacity of 805,000 mt/year are scheduled to be shut for turnarounds in China. Aside from two steam crackers — Yangzi and Sinopec Sabic — all other planned turnarounds have been delayed until after June. The six crackers expected to shut for maintenance in H2 2020 have a combined butadiene capacity of 545,000 mt/year.
Market sources said falling freight rates, amid weak bunker fuel, will continue to attract arbitrage cargoes from Europe. According to the latest statistics from Chinese customs, China imported around 49,000 mt of butadiene from Europe for January to March, accounting for 47% of its total imports of 103,000 mt.
Market participants are also closely eying the butadiene-naphtha spread, which has been narrowing in the first half of the year. According to S&P Global Platts data, the spread sank to a seven-year low of $96/mt on May 6. Market sources said Asian butadiene could fall below naphtha prices in the second half of the year, considering continued expected weakness.
European market looks to Asian exports
In Europe, industry participants remain largely bearish regarding H2 2020 and are predicting little short-term improvement.
The downstream SBR sector looks set to have another downbeat year amid a bleak picture for the tire industry, with Europe looking to exports to fill the gap in domestic butadiene demand.
The first half of the year saw butadiene export prices hit a historic low of $50/mt FOB Rotterdam as the automotive sector shut down across Europe, leading some SBR producers to follow suit. The European industry-settled contract price for May was Eur325/mt, the lowest since Platts began reporting the settlement in early 2007.
Run rates at auto makers are expected to remain low for most of the rest of the year," a buyer said. "Butadiene demand will remain pretty depressed," the buyer said. "All we have seen is exports and I think we will see even more than normal.”
European producers and traders look set to continue targeting the Asian markets. However, recent volatility in freight rates and high inventories heard in Asia looked set to continue providing challenges for European exporters.
Domestically, much will depend on supply levels as high run rates due to profitable ethylene and propylene margins look likely to continue to add butadiene to an already long market. Cracker operators had been heard seeking alternative options for crude C4 in a bid to limit oversupply.
“The crisis hit suddenly, so it's taken people a while to react, but people are now looking at alternatives for the C4," a European producer said. "Margins in the cracker are good but this is the not the case for every product like C4."
We are still facing a few tough months. [...] What I expect is we'll hopefully see a slow restart — it will be long and very gradual.
a producer said
Historically low US price environment set to continue
Following historic low spot and domestic pricing, US butadiene market participants predict more of the same in H2 2020, and say the situation will worsen further before it improves in the fourth quarter.
Producers long on butadiene, combined with demand destruction caused by the coronavirus pandemic, have sent spot and contract butadiene prices on a downward spiral, to hit 11-year and 18-year lows, respectively.
With a depressed automotive industry, there is set to be little downstream demand for butadiene in the form of downstream SBR.
Goodyear Tire & Rubber Company said it took immediate steps to cut costs and stop incoming raw materials such as butadiene. “We quickly shut down production in the US and Europe, and work with suppliers to stop the flow of raw materials and other supplies to reduce expenses and to avoid tying up capital in inventory unnecessarily,” Chief Financial Officer Darren Wells said.
Given multi-year low prices, some companies in the automotive sector are looking to benefit in the second half of the year as they look to emerge from the slowdown.
“As we ramp back up we'll start to buy materials again, but we won't buy a significant amount until the third quarter so we would start to get some benefit in Q4," Wells said. "The active question is going to be ‘what's the price of these materials in Q3?’ because that's when we're actually going to be buying them.”
However, refinery rate cuts could depress supply and prop up butadiene prices. Butadiene “can get tight and push prices up, especially if there are no imports,” one source said.
— Callum Colford, Fumiko Dobashi, Astrid Torres
Global MEG markets buffeted by crude, COVID-19 demand destruction
The global monoethylene market has seen more convulsion than most commodities markets in recent years and, just as it had begun to settle in 2020 after the huge volatility seen in the past two years, the coronavirus pandemic hit.
Slump in costs revive Europe's competitive edge
European MEG demand will be tricky to gauge for the remainder of 2020 as the impact from the automotive plant restarts is yet to be felt in the glycols segment, while PET demand is expected to remain healthy even as European countries gradually relax social distancing rules, according to market sources.
When the double shock of the coronavirus pandemic and the crude oil slump forced European countries into lockdown and enforced social distancing, spot prices fell in response to the demand destruction seen in glycols as the automotive sector suffered. The price decline came despite healthy PET demand going into the food-packaging segment.
However, the crude drop also forced a correction in key feedstock costs, enabling a period of margin expansion.
The May MEG contract price settled at $479/mt FD NWE, down $72 from April and the lowest level since February 1999, S&P Global Platts data showed. At the same time, May monomer costs dropped by $106/mt, having already dropped $214/mt in April. The feedstock margin, based on naphtha and excluding energy, financing and labor costs stood at $249/mt, the highest level since December 2018, giving European MEG producers, reliant on naphtha-cracking, the opportunity to regain or expand profits.
A rebound in crude oil prices might threaten these gains, however, and expected global recessionary pressures could dampen additional demand.
Conditions challenging for US capacity additions
In the US, MEG prices were under pressure throughout 2019 as new supply came online, and that continued into 2020 even before the pandemic hit.
Sources said that, even if crude recovers in the second half of the year and demand slowly rebounds as expected, MEG prices could remain pressured. More capacity is expected to start up in 2020, adding to an already long market.
Formosa’s Nan Ya Plastics suspended construction on its new 800,000 mt/year MEG plant in Point Comfort, Texas on COVID-19 concerns in March. Other major projects were also affected.
The Texas plant is now expected to start up in late Q4, instead of June.
The new plant will push US capacity up to 2.5 million mt/year, along with the other capacity that has started up since early 2019, with most if not all of that capacity export-bound.
In the first three months of 2020, US International Trade Commission data showed outflows nearly tripled to 511,429 mt from 185,813 mt.
China was the top recipient of those flows in the first quarter, taking more than 28%, or 146,161 mt.
By March, flows to China had fallen 83% to 14,766 mt from 86,846 mt in January, reflecting China's widespread shutdowns in response to the pandemic.
At the same time, flows rose to Mexico and Belgium, the top two export markets for US MEG, as US prices fell from a 2020 high of 22 cents/lb FOB USG on January 17 to 14 cents/lb FOB in May — an 18-year low.
Asian demand not enough to absorb global supply
In Asia, the outlook is dependent on overall energy values in the second half of 2020.
Fundamentals aside, Asian MEG spot prices have increasingly become dominated by futures exchange volatility. Trading volumes on the Dalian Commodity Exchange continue to grow.
Although China's demand for MEG is expected to pick up in the next two months as lockdowns ease, prices are expected to come under pressure as additional capacity comes on stream.
The downstream demand expansion in the textile industry would be lagging behind the supply growth of around 1-3 million mt/year in 2020 amid the global economic recession, a market participant said, adding that suppliers will need to run their units at reduced rates. Many new startups, particularly coal-based, are pending, with no start dates yet, observers said.
The Middle East is expected to send cargoes to Asia, where there has been comparatively better demand than Europe and the US, traders said. The US is also expected to send some MEG to China, given that there are new starts planned amid a weak domestic market there, sources said.
Some end-users said Chinese market sentiment seemed stubbornly entrenched in the negative, with most participants expecting consumption at flat to weak rates during the second half of the year. Many Chinese converters said around 30-40% of downstream industries manufacture for export, and noted that China alone could not sustain the MEG capacity growth.
— Miguel Cambeiro, Kristen Hays, Heng Hui
Global PE braces for supply glut, stiffer regional price competition
Uncertainty surrounds the global polyethylene market after the coronavirus pandemic idled suppliers, curbed demand and pressured prices, some to all-time lows, during the first half of 2020. PE supply conditions post COVID-19 were in question following potential delays to planned expansions in 2020 to 2021 from weaker demand, sources said. Some traders, meanwhile, were optimistic over the outlook on the back of rising demand in China and the likelihood of less cost-efficient producers reducing production rates.
European, Asian PE margins improve
Cost differences in differing PE production methods narrowed because of volatility in feedstock values recently, subsequently eroding cost advantages of ethane-based US producers and shifting cost advantages to naphtha-based producers instead, sources said.
Producer margins based on ethylene cost comparisons for Europe and naphtha for Asia turned around in H1 2020 as the pandemic took hold, and this is expected to continue heading into the second semester as the two regions gradually regain the cost competitiveness lost to US shale-based producers in recent years, sources said.
The monthly European ethylene contract price against the monthly low-density PE contract price showed that margins increased in February for the first time since April last year. However, real significant gains were made in April, as PE margins widened by Eur100/mt, according to S&P Global Platts data.
In Asia, naphtha-based PE margins rose to near breakeven levels in mid-April from negative $200s/mt around the start of the year, according to Platts data.
It is more important that European assets become more competitive versus the US. It will be interesting to see how that works,”
A European producer said
"Curious how the US producers can survive in this [low oil] environment.”
Asian PE prices have largely trended in line with crude oil’s general price movements, sources said. Some crude-oil based producers were more positive on the outlook for PE, citing it as one of the better performers among the suite of petrochemical products.
Uptick in demand for food, cleaning, healthcare packaging
Some sources predict a return to normal demand in the third quarter of 2020 at the earliest. Lockdown measures, meanwhile, have spurred demand for flexible packaging for food, cleaning and pharmaceuticals, boosting producer margins, while lower feedstock costs and a slowdown in imports have reduced competition and kept supply-demand fundamentals balanced in the domestic markets, sellers said.
Packaging, consumer and healthcare markets will continue to fare better, while demand may remain weak for other sectors as a result of the "work from home” culture, lower exports of finished goods, and cash flow problems, sources said.
Some buyers said the next traditional peak demand season in Asia might be in late November, in preparation for Chinese New Year. Some traders, meanwhile, said prices may move lower during the year-end as more US material typically arrives at Asian shores before the fiscal year closes to reduce payable taxes.
Traders said the various economic stimulus by governments had had some effect in propping up the PE market, but said export demand for general finished plastic goods in Europe and the US would not be recovered for the full year. Sources also said the overall annual global growth rate was likely to be lower.
Low US prices had many Chinese traders scrambling to book materials for arrival in July, given that a number of companies were successful in applying for 27.5% tax exemptions, sources said.
The exemptions, which importers were able to apply for from March 2, will last for one year, starting from the date of approval, and will be granted on the basis of market value instead of volume, the Chinese ministry of finance said.
It looks like we are putting in a bottom, [...] It may be temporary but a bottom nonetheless.
One US source said
More supply expected in H2, albeit with delays
Delays are expected in new steam cracker startups, given market uncertainty on top of efforts to protect their own financial health, producers said.
Additional capacities in Asia totaling 2 million mt/year might be delayed to 2021 as a result of the coronavirus pandemic.
In the US, Sasol was commissioning a new 420,000 mt/year LDPE plant at its Lake Charles, Louisiana, complex in January when a fire prompted a shutdown for lengthy repairs, and its startup was pushed to the second half of the year. The unit is expected to reach beneficial operation in the third quarter, spokeswoman Kim Cuismano said. Formosa also delayed the January startup of its new 400,000 mt/year LDPE plant in Texas to late July or early August, a spokesman told Platts in May.
— Hui Heng, Miguel Cambeiro,
Jacquelyn Melinek, Eric Su
Uncertainty, slide in demand leads sentiment into H2 2020 for PP
The impact of the coronavirus pandemic on the global polypropylene market is expected to last beyond the summer, with ongoing uncertainty on the demand outlook from automotive and healthier demand for hygiene applications.
Asia supply to increase
Asian polypropylene fundamentals are likely to remain bearish amid expected new startups, although overall demand should gradually improve with coronavirus concerns easing in the second half of 2020.
Total Chinese PP capacity is expected to increase by 2.7 million mt/year, or around 10%, in H2 2020, according to S&P Global Platts data and market sources. With the new capacities and demand destruction due to COVID-19, Asia is estimated to be net short of PP by 0.4 million mt in 2020, down from 2.3 million mt in 2019, Platts Analytics data showed.
Nevertheless, market sentiment is mixed, with some sources citing potential bullish upstream propylene and production losses from refinery cuts. As a result, the room for polypropylene prices to fall further is limited with prices already at record lows, a source said. Asian prices hit $680/mt CFR FE Asia for raffia grade in early April, a record low, before recovering to the high-$700s/mt and low-$800s/mt in May, according to Platts data.
In the automotive sector, China — the world’s largest auto market — will be supported by the gradual recovery of domestic demand in H2, as exports accounted for only a small percentage of the total automotive production — 4% in 2019, according to China Association of Automobile Manufacturers.
However, Japan and South Korea's automotive sectors will face greater uncertainties in the global environment, with tie-ups and consumer bases straddling both developed and developing countries.
S&P Global Ratings' credit team projected in a recent analytical report that global light vehicle sales will fall below 80 million units in 2020, a near 15% decline from the 90.3 million units produced in 2019.
Europe to benefit from easing lockdown
Demand for European PP is likely to see an improvement heading into the second half of the year as government lockdown measures are eased and key sectors restart operations.
Demand from the automotive sector in particular will improve as car factories reopen alongside easing lockdown restrictions, with supply in the second half of 2020 likely to be fed by imports from Russia, where prices are expected to be competitive, participants said.
European demand for PP collapsed in the first half of the year as the coronavirus pandemic hammered the key automotive and construction industries and brought them to a near standstill across the continent.
As consumption slumped and propylene prices went south, European polypropylene was sent tumbling in the first half. European PP spot prices fell 15% from Eur960/mt at the start of 2020 to Eur810/mt in early May, according to Platts data. However, some participants said they thought prices were bottoming out in May, with some signs of recovery in upstream naphtha prices.
Some of the lost demand was offset by a surge in demand from the food packaging and hygiene sectors, driven by consumer panic buying of food and sanitizer products, partially mitigating the price drop. Converters were running at full capacity to meet the spike in demand, which continued into May.
Meanwhile, demand for hygiene and medical applications will remain strong in the second half of the year, with demand for food packaging expected to return to pre-pandemic levels as consumer panic buying diminished.
When will demand for polypropylene return to pre-pandemic levels?
- H2 of 2020
- None of the above
US market participants brace for rocky H2
US polypropylene for domestic and export use also face looming uncertainty as several stalled sectors including auto manufacturing threaten to further diminish demand amid ongoing coronavirus concerns, sources said.
The first half of the year grappled with an unprecedented crisis that pressured pricing to historic lows despite initial firm demand from the medical industry.
A heavier-than-usual turnaround season was also heard to be contributing to the tightness of material for medical supply, sources said.
US spot export pricing rose $143/mt or nearly 16% from January 2 to March 31, Platts data showed. Still, as coronavirus fears grew and manufacturing slowed, pricing trended to its lowest in over 11 years and was assessed at $816/mt on April 29, down 26% year on year. Weaker contract monomer was also attributed to the fall.
Market participants are taking a wait-and-see approach as the country continues to ease restrictions and states re-open for business. Traders and distributors said the challenge lies in balancing inventory amid an expected upcoming slowdown.
From an export standpoint, the sentiment is more bearish. Exports to key markets have been difficult, including to Latin America, which have been propped up by cheaper polypropylene from the Middle East and Asia.
Going forward I see limited global demand and oil to continue to be depressed
A second source said
There is talk that certain grades will remain strong, including grades for medical applications, as the world deals with the aftermath of the pandemic.
— Emmanuel Gallegos Miranda Zhang,
PVC demand facing slow climb to pre-pandemic levels in H2 2020
Construction staple PVC faces an uncertain rebound in terms of prices and demand from a ruthless coronavirus pandemic-induced nosedive as global markets look ahead to the rest of 2020.
As regions work to overcome economic shocks and emerge from widespread lockdowns, buyers of the powder used to make pipes, window frames, vinyl siding and other construction products are trying to gauge when hammers and backhoes will be back in action.
PVC’s fortunes have always been closely tied with economic health and GDP growth, and the pandemic has brutalized both. The International Monetary Fund expects the global economy to shrink by 3% in 2020, with no growth in Asia as a region for the first time in 60 years. The IMF expects the US economy to shrink by 5.9%, and Europe's by 7.5%. In the US alone, 33 million people lost their jobs through April, federal data show. Such prospects leave PVC producers and traders worldwide cautious and hopeful that resumptions of economic activity proceed slowly to prevent a second wave of shutdowns and job losses.
I think a lot of places are jumping the gun [...] A lot of people are hurting and needing jobs, but it really could come back, and that would throw us into this again. That would be bad.
A US market source said
India lockdown showed global ripple effects
India's lockdown, first imposed March 25 and repeatedly extended with eased restrictions through the end of May, threw international PVC markets into turmoil as countries that routinely supply the net PVC importer sought other destinations for their product. That intensified competition with US and European exporters as all chased the same shrinking pockets of demand.
CFR India PVC prices fell to a record low of $660/mt in early April, and CFR China prices plunged to an 11-year low of $620/mt, S&P Global Platts data showed. US export PVC prices fell 39% to $520/mt FAS Houston between the middle of March and the end of April. European prices plunged 29% to $600/mt FOB NWE between early March and mid-May, and CFR Turkey prices fell 33% to $620/mt between February and mid-May.
By June prices had rebounded almost as sharply. However, market sources saw those moves more as pre-buying ahead of higher prices than a real recovery, which was expected to be slow, much like that after the 2008-2009 global financial crash.
“Business will be less than expected this year. Nobody knows how this will play out in the coming months,” a European PVC converter said, adding that there was “uncertainty in prices also, and we hope for better demand, and the construction to start again, but its very difficult.”
Pandemic-related shutdowns that squashed construction activity came when many regions typically are stocking up on PVC to get products made in time for the peak summer construction season. Demand was seen as healthy until it suddenly was not.
PVC high season is not going to happen this year
A European PVC trader said
Adding that the month of “Ramadan ... also is not helping. India is dead, the biggest import market, number two market Turkey – very bad. This will be a slow process, even when lockdowns open.”
India normally imports 2 million mt/year of PVC, but sources expect demand there to remain soft through 2020 as public project delays linger on top of the June-September monsoon season, sources said.
Podcast: PVC markets feeling the force of pandemic's global impact
China PVC makers push for new anti-dumping duties
In China, PVC makers in April revived a push for the government to impose anti-dumping duties on US-origin PVC, which were lifted last year. Chinese manufacturers voiced concerns that the US would flood Asia with imports as the region first hit by coronavirus shutdowns was among the first to resume some normalcy. That process involves months- or years-long investigations.
US export data show China received 61,233 mt from the US in the first quarter of 2020, down 40% from the same period last year when those duties were in effect, reflecting its demand squeeze from widespread shutdowns during those months. China Customs data show the US flows were 45% of China’s total imports in Q1.
And in Latin America, where markets are heavily influenced by prices in Asia, the US and Europe, market participants expect to see the most bearish demand in years for the rest of 2020, sources said. PVC consumption in Latin America reached nearly zero with prices at historic lows, but domestic output gained favor as exchange rate volatility due to uncertainty induced by the pandemic saw currencies across the region depreciate.
Albert Chao, CEO of Westlake Chemical, said in early May that PVC demand could benefit if governments invest in infrastructure to stimulate economies in the short term, and longer term if more consumers seek single-family homes to gain distance from concentrations in multi-family dwellings. But blistering levels of job losses are expected to hamper big-ticket purchases like homes.
We expect, in the longer term, PVC demand will grow more than in the past few years
Albert Chao, CEO of Westlake Chemical
“Time will tell when that demand comes back, depending on economic recoveries.”
— Kristen Hays, Ora Lazic, Fumiko Dobashi
Global PET markets face bearish H2 2020 sentiment
Major event delays reduce, shift demand
Consumer stockpiling wanes, expected to shift to new normal
Polyethylene terephthalate demand saw a boost from bottle and food packaging sectors in the first half of 2020 from the coronavirus pandemic, but more bearish sentiment looms in H2 2020 for upstream feedstock markets and global supply-demand imbalances.
Postponing or shortening major events where millions of bottled beverages are typically sold, from the Summer Olympics to US Major League Baseball and European football championships, has left markets facing demand shifts and adjustments that are expected to linger through the rest of the year.
PET’s crude link may attract switching from PE, PP
Asia’s bottle industry expects some demand recovery as countries come out of lockdown and consumer activity begins to return to normal.
However, the year-long delay of the 2020 Olympics in Tokyo and other large-scale events and gatherings has left some market sources not so optimistic.
There also may be some demand moving into the PET market from other polymers, a producer said. As packaging producers evaluate feedstock prices, some expect to switch from polyethylene and polypropylene to PET, as its close link to crude may benefit from sharply lower oil prices.
Some packaging demand was switched from PE or PP during H1 2020 because the cost of PET is lower; feedstock prices need to be monitored closely
A producer said
Another factor that producers must face in H2 2020 is a supply and demand imbalance. China is likely to remain a net exporter, and increased capacity is expected to prompt Asian producers to seek more export opportunities to the US, Africa, Europe and the Middle East.
Achievable prices for Asian PET remain uncertain, however, given volatility seen upstream in crude oil, paraxylene, purified terephthalic acid and monoethylene glycol markets. Non-integrated producers will feel the greatest pressure from those markets, while integrated producers can better weather the storm.
US PET import needs to remain strong with complex construction delay
One key recipient of the Asian PET supply length in H2 may be the US, partly because of a further delay of the world’s largest PET/PTA complex under construction in Texas. The plant, co-owned by Thailand’s Indorama Ventures, Mexico’s Alpek and Taiwan’s Far Eastern New Century, has been delayed another two years to 2023 due to higher-than-expected labor costs.
The 1.1 million mt/year PET plant, originally slated to start up this year and initially delayed to mid-2021, will decrease US PET import needs, just later than planned.
The US imported nearly 3 million mt of PET in 2019, according to US International Trade Commission data, with Mexico the top source, having shipped 28% of the total.
So far in 2020, PET supply has not been a problem in the US, despite many large beverage companies reporting strong PET demand for plastic bottle production in the first quarter, particularly for water. PET imports in the first quarter fell 17% from Q1 2019, reflecting global production cuts and reduced overall demand amid the coronavirus pandemic.
What are US Recycled plastics PET price assessments?
What are European Recycled HDPE price assessments?
Offsetting the better demand in the beverage sector was, and is expected to be through to the end of the year, suppressed demand in the fiber market. This is especially seen in the carpet production industry. Weak consumer activity and widespread shutdowns in textile, pipe, and automotive industries was expected to hamper growth through H2 2020 as consumers back off from big-ticket purchases like vehicles or homes.
As in Asia, the postponement and cancellation of large events and gatherings over the summer is expected to trim PET bottle demand, with producers assuming the effects of which will be felt “for the remainder of the year,” according to Alpek CEO José de Jesús Valdez.
European producers focused on maintaining market share
Following a stark drop in import PET volumes into Europe for H1 2020, domestic producers will be keen to maintain market share in H2, with memories of 2019 oversupply still fresh.
However, even with lower import volumes, buyers will still be afforded negotiating power, with PET prices just starting to feel the effect of a bearish feedstock market in May. At the beginning of the year, the PET margin over PX and MEG stood at Eur264/mt; by mid-May, it had risen to Eur434.50/mt.
Despite falling PET prices, strong demand emerged from the beverage and food packaging sector across Europe as consumers stockpiled groceries during the pandemic, giving PET prices strength over feedstocks. Market participants expect that margin to shrink in H2, in part because of reduced consumer demand as stockpiling eases and consumers adjust to a new normal.
Mostly, that demand decline will stem from major event cancellations over the summer, including the European football championships, which have been postponed.
PET prices in Northwest Europe had already fallen below lows seen in the 2008-2009 global financial crash, pricing at a low of Eur700/mt FD NWE on May 13. With oil prices expected to remain low at least for the remainder of the year and the potential for competitively priced imports from Asia, buyers will be looking to revert the margin over PX and MEG to a more historically in-line price.
— Benjamin Brooks Sarah Schneider Chris Liu
Global ABS and SBR markets to see continued pressure amid tepid demand in 2H 2020
Asian styrene-butadiene-rubber would likely remain under pressure for the second-half of this year as weak automobile sales would continue to slash tire demand.
For the first half of 2020, Asian SBR market dropped to a record-low, due largely to lower automobile production amid the coronavirus pandemic. Meanwhile, competition with natural rubber will continue in the second-half of this year.
Asian acrylonitrile-butadiene-styrene is expected to see market recovery in the second half of 2020, with demand from China continuing to support the market. It will also find cues from feedstock styrene market movement as the weakness in styrene has translated to improved ABS production margins.
Demand recovery in automobile and home appliances sector remains a top concern for the Asian ABS market, while China’s demand is regarded as the main contributor.
China’s automobile sector, a key downstream of SBR and ABS, was hit heavily on both the production and demand front due to the coronavirus outbreak in early 2020. In Q1 2020, auto production in China plunged 45.20% on the year, while auto sales suffered a plummet of 42.40% on the year, according to data from the China Association of Automobile Manufactures. However, following the eased restrictions in China, both auto sales and production surged on the month in March and market participants expected to see more macro-economic policies to spur the sector in the coming months.
Although the market is progressively returning to normal, uncertainties over the coronavirus and global trade tensions continue to loom the market and some sources were cautiously optimistic about the outlook amid market volatility.
Bearish outlook for European markets as automobile picture remains bleak
In the European markets, sources were unsure on when ABS would stage a recovery noting any rebound was dependent largely on automobile production levels which looked set to remain significantly reduced for much of the remainder of 2020.
Even when people are returning it will be at low rates to begin, we don't expect many orders above contracted volumes
one producer described the outlook
However, sources noted that the ABS market was unlikely to come under a great deal of pressure initially from feedstock, with butadiene expected to be similarly impacted by the automotive sector downturn.
Sources noted that the likelihood of a significant European recession was likely to provide little support to the white goods and home appliances sector, with buying activity expected to remain limited.
The European SBR markets were even further exposed to the state of the automotive sector, with some 70% of European SBR produced going into tire production. SBR sources remained pessimistic about the remainder of 2020, again noting the macroeconomic outlook and subsequent impact on buying patterns.
“The real concern now is that requirement for original or replacement tires won't be good for several years,” an SBR source described.
We are not expecting regular business until September, October earliest. The market dictates, logistical problems are now behind us but the greater risk is now financial
a producer agreed
Market sources also described how substantial stocks had built up at tire producers prior to the lockdown, with the inventory situation being further amplified during the spring lockdown when, at one stage, every major European automobile manufacturer had halted production. The substantial tire stocks were heard likely to prove a further obstacle to SBR demand as tire manufacturers looked to clear backlogs of inventory.
US ABS market expects continued soft demand
US ABS market participants anticipate continued soft demand for the second half of the year with a possible recovery as the automotive industry restarts in the fourth quarter.
Due to demand destruction from the coronavirus pandemic, prices fell to 11-year lows in the first quarter of 2020 as many automakers, which make up a large segment of ABS users, halted assembly lines in the first half of the year.
With a depressed automotive industry, there is little demand for upstream butadiene. Upstream styrene and ACN were also depressed on weak demand during the first quarter.
According to market sources, demand will improve when the automotive industry recovers. The automotive industry could come back strong, anticipating improvement in the second half for butadiene and styrene, translating to improved demand for ABS, one source said.
5Demand for styrene derivatives is expected to pick up in the second half, as some automakers announce plans to ramp back up, market participants said.
— Sophia Yao, Callum Colford, Fumiko Dobashi, Astrid Torres
Construction, feedstock supply key drivers for global polystyrene recovery in H2
Feedstock supply glut in Asia supports production margins
Food packaging, medical applications to draw on polystyrene
Headed into the latter half of 2020, the Asian polystyrene market is expected to rebalance on the closure and commissioning of supplies, and PS will continue to mirror the price movement in feedstock styrene.
Meanwhile, the resumption of demand remains the key question in Europe, with the construction slowdown heavily hitting the expanded polystyrene market. Polystyrene prices have been exposed to extreme volatility in upstream markets in the first half of 2020, and this is likely to set the tone for the second half of the year.
US polystyrene demand is unlikely to see an improvement, though prices are set to gain following a slow rebound in upstream benzene and styrene markets.
Asian PS supplies to rebalance
On the supply front, two major polystyrene producers in Asia will exit the market due to a bearish long-term outlook. Denka will terminate its 200,000 mt/year general purpose polystyrene line in Singapore in late 2020, and Chi Mei Corporate also ceased to produce general purpose polystyrene at its Tainan plant in May. However, such supply losses will be compensated by several new supplies to be brought online in China over 2020-2021.
PS production margins have improved since late 2019 and are expected to remain healthy, as a supply glut in styrene would pressure feedstock prices while demand seems to be recovering. However, positive spreads have led to higher run rates in China, which may persist to the second half of the year. It will also trigger a collapse in prices if supply outstrips demand amid the absence of end-users.
Demand for polystyrene should register a steady recovery, although this is largely dependent on the coronavirus situation. Market sentiment may remain weak given the great uncertainties, but sources expect a demand revival in China, a main PS consumer, to lift the market as many PS producers in Asia are China-centric.
Meanwhile, the market is closely monitoring the conditions in Europe and the US as they are the main consumers of PS end products, hoping the reopening of some economies will boost demand from the bottom up.
Overall, it’s all about when end-users would come back, likely in July or August
A producer said
Construction demand key for Europe
In Europe, construction demand will remain in focus for much of the second half of the year.
Expanded polystyrene is a major insulation material for many countries in Europe, and is in particular use within Germany and France for homes. Construction activity across the continent has shrunk, with many countries reporting expected economic contraction in the sector due to COVID-19.
No clear signposting has been discussed by European governments for an end to the lockdowns, with social distancing measures expected to remain in place until the third quarter at the earliest. This will continue to impact workforces, as even though essential construction works have continued, proximity restrictions will continue to cut activity drastically.
Steady demand will continue to be seen from food packaging and medical applications drawing on polystyrene grades, and producers will continue to push to maintain or widen margins on these products due to demand destruction for other styrenics markets.
Pricing volatility is likely to remain a key concern in Europe during the second half of the year, as changing restrictions on lockdown measures are likely to differ between countries.
Both styrene and benzene markets have high stock levels in Europe, and without a significant improvement in demand from the downstream, both markets will look to export for support. Further quick swings in pricing may result from length clearing, but without a sympathetic increase in downstream demand from domestic Europe, this will place pressure on polystyrene producers.
Weak US H2 demand
During the second half of the year, both benzene and styrene are poised to rebound slowly and this should provide a boost to US polystyrene pricing. US polystyrene prices saw significant declines during the first half of the year, with prices pressured by sharp decline in the US benzene contract. The US benzene contract fell 161 cents/gal between March and May, dragging polystyrene prices lower.
Sources noted that US styrene producers were running at reduced rates, and expectations were that run rates were close to 70% industry-wide to end the year. This was expected to result in an uptick in pricing and ultimately could keep margins soft.
Demand growth, which was poor prior to COVID-19, is likely to be muted for the remainder of the year, with strength seen in food packaging and medical applications. However, demand from larger segments, such as appliances, automotive and construction, are not expected to show significant improvement in 2020 as high unemployment rates and uncertainty surrounding economic growth curtail buying interest for durable goods. This will negatively impact initial expectations that put annualized polystyrene growth at between 1.8%-2%, said sources.
— Sophia Yao Simon Price Kevin Allen
Latin America sees coronavirus fallout on polymers lasting through 2020
- Demand destruction from coronavirus pushes prices to historic lows
- GDP declines expected in 2H 2020
Latin American economies took the same punches the coronavirus pandemic hurled at the rest of the world, and the region expects to feel that fallout through the rest of 2020 with lower output and wary spending.
“Coronavirus pandemic took everyone by surprise,” said Luiz Francisco Cunha, director at Schutz Vasitex and head of Brazil’s Blown Industrial Packaging Manufacturers Chamber (COFEIS).
We were all waiting for a recovery for 2020, and many of the companies have prepared themselves, invested, took out projects that are in the drawer to meet a new demand, a new economic scenario, and we had this unprecedented stoppage. Since there was nothing like it previously, we have no way of making predictions
The pandemic prompted governments to adopt quarantine measures and restrict nonessential services. Shopping malls, car dealerships, and movie theaters were closed in most Latin American capitals, and countries were expected to continue at least minimum quarantines into the second half of 2020.
The restrictions slammed polymer demand for automotive and construction sectors, known for heavy usage of polypropylene and polyvinyl chloride. At the same time, PP demand for N-95 masks, gowns and other medical products used to combat the pandemic was not enough to offset impact on the auto sector. All auto makers in Brazil and Argentina shut down operations in the second quarter 2020, sharply siphoning regional PP consumption, while resuming slightly some plants in June or the third quarter.
As for polyethylene grades, demand veered to food packaging, bottles for cleaning products or hand sanitizers, and flexible general packaging or plastic bags. Even so, some distributors reportedly halted buying. “We are not having enough consumption to justify new purchases,” a Brazilian distributor said.
In Argentina, Ecuador and Colombia, lockdowns were more intense than in Peru, Chile and the Mercosur region. For the coming months, however, activity is expected to come online in all countries.
“Industries are working with much reduced rates, but at least resuming some operations,” a regional distributor said, adding that by June or July, expectations are for higher consumption in general.
Polymer prices hit historic lows
Lower demand pushed imported polymer prices to historic lows in America during the first half of the year. Global prices regained upwards momentum in June and this was reflected in Latin America, but prices continue to face headwinds. Compared to January levels, most polymers fell about $100/mt or more in Brazil and in the West Coast of South America. Latin American PE import markets are highly influenced by the US, while PP markets see more impact from the Middle East and Asia.
Brazil’s domestic market was more resilient, as the country’s naphtha-based producer Braskem benefited from low feedstock prices amid the global oil price crash. Braskem increased naphtha consumption from the state-owned oil company Petrobras in Q1 and again in April.
Domestic prices also reached historical lows in Argentina, Colombia and Mexico, but recovered during June.
Sources were divided on price movement in the near future, given pandemic-driven volatility. Some believe prices hit bottom in the second quarter, while others say values could reach new lows in the coming months, depending on activity and consumption resumption levels.
In Brazil, plastics-related companies were said to rely on short-term expectations, with longer term forecasts unavailable. According to plastics association Abiplast, more than 50% of the companies have frozen investments completely. Abiplast also expects a 5% decline in 2020 plastics manufacturing output.
GDP declines looming
In general, expectations for the Brazilian economy have become gloomier so far in 2020. A weekly report published by Brazil’s Central Bank initially projected 2.34% GDP growth, but had evolved to a contraction of more than 4% by the second quarter. The International Monetary Fund (IMF) expects Brazil’s GDP to decline by up to 5.3% in 2020.
Argentina, the second largest South American economy, expects to see its GDP decline by 6.5%, the largest drop since 2002, according to its Ministry of Economy. IMF projects a smaller decline of 5.7%, however. Mexico’s economy, according to IMF, is expected to fall 6.6%.
For the recovery, plastic players expect a U-curve rather than a V-curve because of those anticipated GDP declines.
Additional stress stemmed from the devaluation of Latin American countries’ currencies towards the dollar. In Brazil, the exchange rate entered 2020 with a high value, at Real4.01/$1, but it hit new levels in the first half of the year, surpassing Real5.90/$1 toward Real6.0/$1, the most depreciated currency in the region. The Real appreciated during June, but it’s still ahead the Real5/$1 mark.
Another issue for converters was limited availability of credit lines in the region, where financing became 40% to 50% more expensive.
“Nothing is certain because we do not know what can be determined by public authorities, since there is a possibility of lockdown, and a drastic closure in this way would prevent trade and business from evolving,” said Edson Begnami, sales director at Plasutil and head of the Brazil’s Houseware Manufacturers Chamber (COFAUD).
— Guilherme Baida , Flavia Alemi
Tough times ahead as recycled plastics struggle with sustainability shifts
US, Europe coronavirus supply impact to be felt through H2 2020
Planned Asia recycling plants delayed amid economic uncertainty
The repercussions of the coronavirus pandemic look set to test recycled plastics markets across the globe in the second half of the year, with tight supply and poor economics the key hurdles for both sellers and buyers.
Sustainability commitments tested as US R-PET economics pose challenges
Prior to the coronavirus outbreak, the US recycled plastics industry had already been plagued by extremely cheap virgin PET, high fixed-processing costs and export restrictions, leading to calls for systemic and policy reform initiatives across the supply chain. In 2019, Congress saw an historic influx of recycling-related legislation. However, in the first half of the year, most sustainability legislation took a back seat as the US focused on containing the coronavirus.
Without government mandates, R-PET demand is expected to remain weak as cost-sensitive bottle manufacturers increasingly reject recycled material for low-cost virgin resin, which saw historic lows in April.
Supply of post-consumer bottle bales has been severely limited during the pandemic due to labor shortages, collection cuts and bottle bill suspensions, prompting PET bale prices to surge and recycled flake/pellet output to decline.
Therefore, given low-cost virgin PET prices and R-PET supply constraints, many end users in the flake to packaging sector struck 6-12 month contractual agreements with resin producers to secure reliable PET supply.
The recycled PET fiber market will likely bear more of the brunt of the imbalance between virgin and recycled PET. Demand will remain weak in the near term as the textile, carpeting and automotive industries continue to face global manufacturing slowdowns and are forced to curtail operations amid financial constraints. Even if supply volumes and demand levels begin to normalize in H2 2020, some market participants fear the full PET reclamation chain will be unable to survive. Overall, market sources expect R-PET buying and selling to shift away from contracts towards the spot market this year as the future relationship between virgin and recycled PET remains uncertain.
European sustainability commitments endure downturn; supply still key concern
The European virgin and recycled PET markets have been decoupling since mid-2019, but H2 2020 will bring fresh concerns for participants looking to secure supply.
Recycled HDPE and PET premiums over virgin equivalents have increased during the coronavirus pandemic, partly due to more stable demand than virgin but also to high-cost bales and squeezed margins for recyclers. This primarily caused fragmentation in the recycled markets, with demand for higher grade material robust and lower-grade suffering the full effects of the economic slowdown.
As in the US, more economically sensitive buyers — such as those purchasing construction and automotive grades of R-HDPE or tray and sheet participants in the R-PET market — switched further volumes to the virgin market. By mid-May pricing was lower than during the 2008-09 global financial crisis.
At the top end of the market, however, dwindling supply is being consolidated by a small proportion of larger buyers, who remain committed to publicly announced sustainability initiatives.
Across the board, supply was, and will remain, hampered by the coronavirus. Cancellation of large sporting events and mass gatherings over the summer will dampen demand, with far less post-consumer material entering the recycling supply chain moving into the third quarter.
Recyclers may remain reluctant to purchase post-consumer material if margins do not recover.
We’ll only take bales if they are free; for now, we are just working through existing stocks
A Polish recycler said
With pressure from the low-priced virgin market on recycled PET flakes, margins are under pressure; this will lead to lower volumes and even the halting of production of lower grades of R-PET and R-HDPE.
Instead, recyclers will try to offset lower volumes by producing higher quality grades such as R-PET food-grade pellets and R-HDPE natural pellets, where ready buyers remain.
Asian recycling business growth slows
Asian recycling businesses are expected to continue expanding, though at a slower rate due to the coronavirus.
Major projects to increase recycling capacity remain in the pipeline, expected to be brought online in the coming six to 18 months, including but not limited to new capacity of 50,000 mt/year of R-PET and R-HDPE from PTT Global Chemical and Alpha Packaging in Thailand, 25,000 mt/year of R-PET from Veolia Services Indonesia, 16,000 mt/year of R-PET from PETValue in the Philippines and 30,000 mt/year of R-PE film from Suez in Thailand.
Nevertheless, the current economy is particularly challenging for small and medium-sized enterprises. Countries lacking infrastructure for both waste collection and reprocessing will see scant government support, with other sectors of their economies the more immediate priority, observers said. Some recyclers are likely to remain closed even after lockdowns due to scant waste and sorting collection supply, and concerns of virus exposure from handling materials, sources said.
The pandemic has also delayed the transition to higher-end applications by at least six to 18 months, a source said.
— Benjamin Brooks, Sarah Schneider, Miranda Zhang
Caustic soda could see downturn in H2 after COVID-19 price boost
The global caustic soda market will likely see a downturn for the second half of 2020 as a supply-driven price boost from reduced chlor-alkali rates deflates, market sources said.
Lockdowns amid the global COVID-19 pandemic eased in May and June, but demand, which was already soft through 2019, remained uncertain
India’s lockdown, which started in late March and softened in May, could last at least for few months and the country may even return to full restrictions, depending on the spread of COVID-19.
Caustic firms on limited supply
Through the second quarter of 2020, global caustic soda prices firmed as producers reduced chlor-alkali rates, triggered by weak demand for chlorine and products throughout the downstream PVC chain.
Before the COVID-19 outbreak, prices had been relatively soft on weak demand in alumina and pulp and paper industries, for which caustic is a key feedstock. The FOB Northeast Asia caustic soda price rebounded by 20% to $270/mt in mid-May from $225/mt at the end of March, S&P Global Platts data showed.
US export caustic prices shot up by more than 75% between the end of March and June to reach $395/dmt FOB USG, with US producers having announced a third round of price increases so far this year for domestic material, seeking to capture that supply-driven opportunity.
The FOB Northeast Asia caustic soda price rebounded by 20% to $270/dmt in mid-May from $225/dmt at the end of March, then fell back to $250/dmt by early June, S&P Global Platts data showed.
However, demand may not support the stronger pricing levels — at around $650-750/mt — seen in Europe during the 2008-09 financial crisis and 2018 mercury cell upgrades.
Market sources said Asian caustic soda demand remained healthy in the first half of 2020 despite the COVID-19 pandemic, amid high alumina refinery operations. India continued to import caustic soda despite its lockdown as well. China is the world’s largest alumina producer, with half of global output.
“It takes months to adjust operations at an alumina refinery. For the first half of this year, a demand-and-supply condition was imbalanced as caustic soda demand remained healthy due to high alumina operations, while caustic supplies were limited on lower chlor-alkali operations,” a Japanese producer said.
The producer added that caustic soda demand in Asia would likely soften in the second half of the year in line with falling alumina refinery operations, likely pressuring caustic soda prices.
In the US, Olin might fast-track its closure of a 230,000 mt/year chlor-alkali facility in Texas by year-end, Chief Operating Officer James Varilek said in May, leaving the issue open-ended.
"What we're going to do is to take a look to see how demand materializes," Varilek said. "We'll assess what we need to do over the next several months."
Price strength could be short-lived
US market sources also said that, if industrial demand remains soft as was the case pre-COVID-19, caustic soda’s pricing spike would likely be short-lived. Export prices reached $400/mt FOB in late May, but appeared prevented from rising further, particularly as chlor-alkali rates slowly ramped back up, increasing caustic supply.
That said, with domestic price increases pending and caustic supply on allocation through May, Olin CEO John Fischer said that the company in the short term at least was “bullish on caustic pricing.”
In Europe, caustic availability through the rest of the year is expected to remain limited, with demand somewhat flat.
“The market is short in caustic but the demand is still weak,” a European producer said.
Market sources said that, even with the lockdowns eased, it would take some time for the economy to recover, as end-user demand difficulty will continue for months, possibly into 2021. A European source noted that economic indicators pre-COVID were “not rosy,” and activity was not expected to bounce back to what it was before the outbreak.
“No one is going to buy a car, or a house and start renovation,” the source said.
European chlor-alkali plant capacity utilization stood at 80.9% in March, down 6.9% from February, while caustic soda stocks stood at 209,701 mt, 13% below February levels (241,996 mt) and 28% down year on year, according to Eurochlor.
Market sources said that April data will be also fully affected by the COVID-19 effects, with European plant rates expected at much lower than 80%. US market sources expect April rates to be 75% or lower, down from 90% in March.
Even in H2 2020, we do not see a situation much changed from now,” a European producer said. “The recovery will be very slow and may take rest of the year. Vinyls applications or TDI/MDI might become a bit better in H2 but, it’s not clear yet by how much.
In addition, some chlor-alkali plant turnarounds in the US and Europe, typically planned for spring, have been delayed as COVID-19 stay-at-home orders reduced subcontractor availability or companies sought to limit the numbers of people at plants to prevent COVID-19 spread. Delayed turnarounds could limit rates in the latter half of 2020 as well, potentially giving prices another supply-driven boost.
— Kristen Hays Fumiko Dobashi Ora Lazic