Subdued automotive demand keeps petrochemical market under pressure

Petrotahlil — Petrochemical markets have been significantly affected by the challenges faced by the European automotive industry during the coronavirus pandemic.

Despite automotive plants resuming production and a steady increase in the number of car journeys, the recovery was expected to be slow.

The European Automobile Manufacturers Association (ACEA) has revised its 2020 forecast for passenger car registrations down to a fall of about 25%.

ACEA expects car sales in the EU this year to tumble by more than 3 million from 12.8 million units in 2019.

Infrastructure and trade flows

•Annual August shutdowns at many European tire and synthetic rubber producers were expected to go ahead despite widespread closures during the height of the coronavirus pandemic

•Polish oxo-alcohol producer Grupa Azoty plans to carry out annual maintenance at the Kedzierzyn plant in Poland from August 8 until September 9

•Following the lifting of lockdown measures in Europe, automotive demand remains weak, and oxo-alcohols suppliers were keeping an eye on arbitrage opportunities to Asia

•The European chlor-alkali industry expects some major plant maintenance to take place between end of August to October, delayed from spring due to COVID-19

•As European chlorine production has ramped up in June, caustic soda exports out of Europe have resumed

•Upstream styrene monomer producers keep run rates low with key automotive demand absent

Weaker demand continues

•Little improvement was seen in the SBR market with market participants expecting demand from the automotive sector to remain weakened into 2021

•The ABS market remained relatively weak with automotive demand in particular muted. Home appliance demand was also muted though market participants noted boost from furniture sector and less competitive Asian imports

•Demand for European styrene from the downstream automotive segment remained stagnant with styrene-butadiene rubber -- used in car tires -- suffering a major drop in demand, according to sources. The polystyrene draw from the automotive sector remained weak, with the market supported mainly by food packaging and medical application demand

•Styrenic costs look to increase for July despite soft demand as upstream energy prices rise

•European methanol participants anticipate weak fundamentals in July as demand from the automotive sector is still subdued due to the pandemic

•In the European PP market, producers said demand from the automotive sector was improving in June, sitting at around 50%-60% of demand levels seen in June 2019

•Oxo-alcohols demand has improved in June, as buyers in the automotive sector took advantage of cheap raw material to re-stock

•Phthalatic anhydride demand from the automotive industry was stable to soft in June, with producers eyeing exports opportunities

•Butadiene demand remains subdued amid weak downstream automotive sector and upcoming maintenance at Butachimie, Europe's largest consumer. However, producers note demand improvement for contractual levels

•Demand for European toluene remained soft, with low bid levels being explained by a limited need for gasoline blendstocks. According to sources, gasoline blenders are not willing to pay above the current premium to Eurobob levels

•Driving activity across Europe was expected to pick up further as international tourism gradual re-opens, resulting in higher consumption of gasoline blending components

•Raffinate-1 activity heard picking up driven by an increase in MTBE demand off increased driving activity

Prices and margins

•Prices in the butyl acetate market have been on a downtrend, falling 19% from April 7 to June 23, with market participants attributing the drop to muted demand from the automotive sector

•The European methanol contract price for the third quarter has been agreed at Eur225/mt, down Eur30/mt from Q2, due to weak global demand and long supply

•The MTBE premium to gasoline jumped 45% on the week to June 24.

•Solvent naphtha at fresh 2-month high on higher gasoline markets, expectations of further price increase in July

•Narrower gasoline contango makes it less attractive to store toluene and other gasoline blendstocks components. There is a possibility of a "competition" among gasoline blending components for a space in storage tanks, according to a trader

•Market awaits the European ethylene contract price settlement for July and expects the contract to be affected by the recent price rise in the upstream crude oil complex

•Caustic soda spot prices fell by 23% so far in June, impacted by the post-lockdown rise in chlorine production to feed into the automotive and construction sectors

•Oxo-alcohols spot prices were stable in June and did not track the price rise in propylene feedstock due to ongoing weakness in the automotive.

•Hydrocarbon solvents distributors warn of margin squeeze amid higher crude-driven prices but continued weak demand for automotive applications

•Polyethylene producers to seek price increase, despite easing demand for food and packaging from lockdown levels, weak automotive and construction, as surging naphtha costs compromise integrated margins.