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