News Code : 44097

Petrotahlil - Petrochemical trades may be localized at regional levels while scheduled start-ups of new capacities are likely to be delayed as global demand takes a strong hit from the combination of a pandemic-induced recession and low oil-price environment.

China’s erstwhile strong demand for petrochemical imports will naturally slow down in line with the general slump in manufacturing activity, particularly in the first quarter, at the onset of the virus outbreak in the Chinese central city of Wuhan.

Concerns about virus-weakened demand amid an oversupply have also been weighing heavily on upstream crude market. Crude futures prices plunged 24% on 9 March as oil giants Saudi Arabia and Russia clashed over another output cut and instead decided to boost production.

The unabated global spread of the coronavirus, which was recently labelled a pandemic, heightened fears of plunging the global economy into a recession, thus triggering the worst global equities rout witnessed in decades.

“But in every very black cloud there is a silver lining … the collapse in oil prices has significantly eroded the advantage of US and Middle East ethane-based PE and ethylene glycols producers versus their naphtha-based competitors, ICIS senior Asia analyst John Richardson said.

In the current market conditions, Asian naphtha-based players will have “greater ability to defend their markets shares from US and Middle East competition in the China market”, Richardson said.

Notwithstanding a possible contraction in March-quarter GDP growth due to virus-containment measures, China - a giant emerging market - remains a prime export destination for petrochemicals and polymers.

Petrochemical producers will have to do “a lot of data crunching and re-crunching … as they re-estimate demand, sales targets, operating rates and trade flows”, Richardson said.

He warned of “a potential breakdown in global trade” if China’s port closures implemented in the first quarter extend globally.

To date, the total global tally of the novel coronavirus infections stood at more than 150,000 with the death toll at nearly 5,700 across 146 countries/areas/territories, according to the World Health Organisation (WHO).

The bulk of infections and fatalities are in China, but confirmed cases have been spiking at different regions globally.

Next to China, Italy, Iran and South Korea have the highest number of confirmed cases.

“A collapse in consumer demand could further weaken global trade flows, along with perhaps shortages in petrochemicals and polymers and other shipping capacity as the shipping companies reduce availability in order to reduce their losses,” he said.

“The end-result might be much more regional petrochemicals markets. This could give higher-cost producers in some regions greater protection against lower-cost imports – although of course these producers, along with everyone else, will face pressure from weaker demand,” Richardson said.

Petrochemical projects may be at risk of being delayed as it may take time for demand to recover from the pandemic, while existing plants may have to run at reduced rates, he said.

“This will eventually bring markets back into balance, but such is the scale of the demand shock that a big improvement in market conditions may not happen for a good while longer,” Richardson said.

Follow us on twitter @petrotahlil

Source : ICIS



Send Comment

view latest news
More News