Asia petrochemicals outlook, w/c Nov 11

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Petrotahlil :As the year draws to a close, several Asian petrochemical markets are mulling production cuts in light of increasing supply coupled with sluggish demand, as well as narrowing margins.

AROMATICS

Demand for Asian benzene is expected to continue seeing support this week, with CFR China demand healthy amid a steep backwardation in the East China market as inventories stay below 100,000 mt. Spot trading may thin out moving forward, as term contract discussions for 2020 are underway.

Continuous weakness in styrene monomer comes amid the expectation of an increase in supply as deepsea material lands in Chinese waters in end-November, while domestic supply could increase as soon as December with the start up of new plants. In market fundamentals, the CFR China styrene monomer spread to CFR China feedstock benzene hit an all-time low last Friday, with CFR China styrene assessed down $13/mt day on day at $883/mt CFR China, while CFR China benzene was assessed up $12/mt over the same period.

Persistently bearish sentiments on expectations of a lengthening paraxylene supply and weak downstream purified terephthalic acid are threatening to push Asian PX prices lower, further deteriorating margins. Sources noted that the recent thin discussions might be expected to continue until the end of this year as market participants are not looking to take positions on the back of impending new start ups in late-2019 or early-2020. Asian PX has been under pressure, barring a slight uptick early last week, on the back of the firm upstream market. Asian paraxylene rose 58 cents/mt last week to $765.75/mt FOB Korea and $785.75/mt CFR Taiwan/China Friday.

In the MTBE market, supply is expected to lengthen as plants restart post maintenance and new MTBE capacity coming online, amid weak demand during the off-peak winter season. China's Hengli Petrochemical restarted November 4 its 820,000 mt/year MTBE plant at Dalian after a week-long maintenance, while Malaysia's Pengerang Refining and Petrochemical is about to start its new 750,000 mt/year MTBE plant at the RAPID refinery sometime in November, having already commenced test runs.

INTERMEDIATES

Asian purified terephthalic acid prices are likely to remain under pressure this week amid bearish sentiment. Despite firm demand, and with downstream Chinese polyester sector running at an 88% rate, PTA prices have continued to trend lower. Market participants attributed the fall to weak sentiment and a soft outlook due to new capacities. Chinese downstream polyester producers are offering discounts to push for sales, indicating weak demand from the end-users toward year end.

Elsewhere, Indian PTA stock is rising and demand is weak along the whole polyester chain, an Indian polyester producer said last week. "PTA demand is very bad [in India]," a trader said, adding that a local PTA producer is offering discounts to term contract customers in November. The PTA CFR China marker was assessed $12/mt lower on the week at $608/mt CFR China Friday.

Market sentiment is bearish along the whole polyester chain and trade participants are seeking cues on the market direction for Asian monoethylene glycol this week. In supply, MEG stocks remains on a downward trajectory at East China's main ports, falling 25,000 mt week on week to around 565,000 mt last Thursday, a market source said. In downstream, the overall rate of the polyester sector remained high at around 88%, driving the immediate demand for MEG. The MEG CFR China marker was assessed at $533/mt last Friday, down $8/mt week on week.

Chinese methanol prices are expected to soften further this week even as fundamentals in the Chinese market for December look balanced. Unconfirmed reports that a new Iranian methanol plant might be exporting cargoes to China as early as next month sent methanol futures in a tailspin, and spot ex-tank prices at east China have plunged Yuan 70/mt on the week to around Yuan 1,930/mt Monday. Elsewhere in Southeast Asia, prices in Korea and Taiwan are likely to remain stable this week with limited spot trading activity as end-users have secured enough material to last them through December.

OLEFINS

Asian spot ethylene prices are expected to remain rangebound as a pick-up in demand in Taiwan and China coincides with a persistent supply glut.

Market participants will be monitoring whether producers will cut run rates at their steam crackers as margins of ethylene derivatives continue to remain weak.

A volatile styrene monomer market could impact demand as the downstream market seeks price direction. Spot activity is also likely to pick up this week as many market participants return from last week's industry conferences.

Asian butadiene would likely find a support this week, after falling more than $100/mt week on week last Friday, as spot demand is seen to be emerging amid improving margins for downstream synthetic rubber production. The price spread between SBR and butadiene was calculated at $510/mt last Friday, higher than a typical breakeven spread of $500/mt.

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