Petrochemicals - Naphtha spike hits product spread

Petrochemical product spreads fell across the board WoW as naphtha cost moved up with oil price. Despite more optimism after China issued stimulus packages, product spread has failed to react positively likely because producers are unable to pass on the higher feedstock cost. SETPETRO is down 5% from the high following the announcement of China’s economic stimulus package, indicating vulnerability to uncertain global economic growth and petrochemical demand amidst rising geopolitical tension. Investors should stay cautious in short-term trading despite undemanding valuations.

Average PE/PP spread down to 7-month low. Higher naphtha cost slashed average PE/PP product spread 15% WoW to only US$325/t; spread fell a sharper 18% WoW to US$272/t (vs. 12MMA of US$324/t) when excluding LDPE spread of US$485/t. Naphtha-based producers continued operating in the red given typical cash cost of
US$350/t. This suggests that higher oil price and weakening confidence among buyers continues to outweigh the good news of China’s stimulus. We expect product spread to remain weak as buyers stay sidelined amidst volatile oil price, low seasonal demand in 4Q and uncertain demand outlook for 2025.

Aromatics prices buoyed by higher feedstock cost. PX and benzene prices were driven up by higher feedstock cost from higher oil price and stronger downstream demand, especially PTA and polyester. However, prices rose less than naphtha cost, shrinking PX spread by 1% and benzene spread by 6% WoW. Demand for PX was driven by higher PTA plant operating rates and market expectation of PX production cuts given a weak margin. PX-naphtha spread is already down 28% over the past three months to only US$285/t vs. 12MMA of US$400/t. PX price and spread are expected to weaken gradually as demand from end-use sectors could return again in late 4Q while more capacity additions will start up in October. (CCFGroup)

Integrated PET spread down to 3-month low. Higher oil price led PET bottle chip price up 4% WoW to US$830/t vs. 12MMA of US$908/t. We believe lower seasonal demand and abundant supply in Asia continues to hold back price despite China’s economic stimulus. Integrated PET spread slid 7% WoW to a 3-month low of US$96/t vs. 12MMA of US$108/t, as prices of key feedstock increased 3-6% WoW, especially for PX and PTA. Spread is expected to weaken in 4Q24 on stronger PTA price given an increase in demand from polyester producers as they prepare raw materials for downstream buyers ahead of the festive season in 4Q24-1Q25.