Asia petrochemicals outlook

05:33' PM - Tuesday, 13/06/2017

Sentiment in the Asian petrochemical markets is mixed this week amid uncertainly over China imposing a consumer tax on mixed aromatics in July as well as India implementing a goods and services tax from July 1.

The stronger yuan, which has appreciated 10% against the dollar since May 26 after the People's Bank of China announced a counter-cyclical adjustment factor in fixing the daily yuan rate, also supported petrochemical markets.

India's Reliance Industries Ltd. has successfully commissioned the third crystallization train of its paraxylene plant at Jamnagar, the company said in a filing to the Bombay Stock Exchange late Friday.

The commissioning of the third train will more than double RIL's PX production capacity to 4.2 million mt/year, making it the world's second-largest PX producer with 9% of global PX capacity and 11% share of global production, the company added.

RIL's No. 2 aromatics complex at Jamnagar has a nameplate production capacity of 2.2 million mt/year of PX and 500,000 mt/year of benzene.

Market participants in India are waiting to see the impact of the GST of about 18% on primary polymers and 28% on finished goods.

The GST was expected to marginally decrease effective tax rates to the tune of 2% for sectors such as consumer durables, construction material and fast moving consumer goods, according to analyst reports.

AROMATICS

Low stocks supported Asian styrene monomer prices. SM inventory in East China fell 12.86% week on week to 81,300 mt last Wednesday, the lowest level since February 3.

Stocks have been falling since the start of April. As a result, domestic prices have risen 12.45% since May 9 to Yuan 9,300/mt Friday and sentiment is expected to remain bullish this week.

However, the recent restart of Abel Chemical's 250,000 mt/year SM plant as well as Tianjin Dagu's 500,000 mt/year facility after maintenance are expected to keep domestic prices stable in June as supply tightness eases.

Regional spot supply is expected to remain tight in July with Lotte Chemical's 580,000 mt/year Daesan SM plant shut for maintenance and Taiwan FCFC's 600,000 mt/year No. 3 SM plant yet to restart.

Asian isomer-grade mixed xylene prices are expected to track crude, naphtha and PX prices this week with buying interest from China supporting prices despite weakness upstream.

Isomer-MX shed $10/mt week on week to be assessed at $632/mt FOB Korea and $652/mt CFR Taiwan last Friday.

On Monday, a Chinese trader said that buying interest for July cargoes was stable from last week at around $640/mt CFR China.

OLEFINS

Butadiene price was the lowest in 12-16 months on Friday as domestic prices in China sank on oversupply concerns and volatile natural rubber markets.

With several synthetic rubber producers considering production cuts due to oversupply, butadiene inventories could stay high for the immediate future.

CFR China propylene plummeted $72/mt week on week to $835/mt CFR China Friday and $48/mt week on week to $810/mt FOB Korea on slowing demand.

Market sources said propylene was strongly dependent on downstream polypropylene and as buying interest continued to wane, prices could decline.

Persistent spot ethylene supply from the Middle East and Southeast Asia continued to exert a strong downward pressure on prices last week, causing Asian ethylene to hit a 16-month low last Friday.

According to market sources, some upside was seen in rising derivative margins and the ethylene market could bottom out soon.

POLYMERS

Polyethylene production margins are expected to remain positive for integrated producers amid lower feedstock prices, market sources said.

For now, there is a significant differential of $500-800/mt between the raw materials and PE, more than sufficient to withstand an uptick in feedstock costs, market sources said.

Naphtha costs would be capped by bearish factors such as ample supply of deepsea cargoes and increasing use of LPG as feedstock while coal and ethane prices remain uncertain.

For unintegrated producers, a minority among PE makers, who use ethylene as feedstock, margins appeared positive.

This reverses six months of consistently negative margins since November 2016, according to Platts data.

Asian PP was stable last week despite some softening in China's domestic market.

METHANOL, MTBE

Methanol prices were flat to $10/mt higher last week on tight supply due to plant shutdowns. Malaysia's Petronas unexpectedly shut its 1.7 million mt/year No. 2 methanol plant at Labuan last week for 4-5 days due to an power outage. The full effect of the shutdown is not known yet although customer requirements would be fulfilled from stocks, a company source said.

Asian MTBE continued to fall in a sluggish gasoline market and bearish Western crude futures outlook for July.

Buy ideas for 2,000-5,000 mt H1 July-arrival cargoes were heard at a premium of $18-$22/mt to the Mean of Platts Singapore MTBE assessments on a CFR Singapore basis, amid thin discussions as most blenders stayed on the sidelines.

A Malaysian Form-E cargo for H1 July loading was heard offered at a premium of $55/mt to MOPS MTBE assessments for delivery to South China, but did not attract any buying interest.

Chinese domestic prices for prompt loading fell by Yuan 100-150/mt last week to Yuan 5,450-5,500/mt delivered to South China, which is equivalent to $632/mt CFR South China on an import parity basis for non-Form E cargoes.

Market uncertainty is likely to hold back spot negotiations this week. - Platts -

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