Petrochemicals – Product spread driven up by cheaper naphtha

A 1% WoW fall in naphtha cost pushed spread for most petrochemical products up over the week. At the same time, we believe the greater optimism on the sector due to the recent announcement of stimulus packages in China is not yet in the product prices. We suggest buyers remain cautious on the effect of the stimulus on demand amidst abundant supply in the market. SETPETRO leapt 7% in the two days following the announcement before retreating 4% on profit-taking. This indicates uncertain market confidence and we continue to recommend investors stay cautious in short-term trading although valuations are at -2SD of 5-year average PBV multiples.

Average PE/PP spread up WoW on cheaper naphtha. PE/PP product prices remained steady WoW but average PE/PP spread rose 4% WoW to US$393/t on a 1% WoW drop in naphtha cost. Excluding LDPE, average spread edged up 1% WoW to US$330/t still in the red against cash cost of US$350/t. This implies China’s stimulus package did not bring enough optimism to lift confidence sufficient to build inventories given plentiful supply. Average PE/PP spread (ex. LDPE) in 3Q24 is down 2% QoQ to US$330/t. We expect product spread to remain weak as buyers prefer to stay sidelined amidst volatile oil price, low seasonal demand in 4Q and uncertain demand outlook for 2025.

PX spread saw the highest weekly increase since Dec 2023. After a steady decline since early Aug, PX spread jumped 14% WoW to US$288/t on higher demand from downstream PTA and polyester in India and China, ahead of China’s Golden Week, sparking PX price (+3% WoW) to a 4-week high. PX supply will remain abundant in 4Q24 on higher operating rates at PX plants in China on a higher quota for gasoline exports. Benzene spread rose 2% WoW to US$293/t vs. 12MMA of US$313/t. Supply of benzene is expected to increase in 4Q24 after plants in China start back up after planned shutdowns and some impact from weather. Further, more capacity additions will start up: Shandong Yulong Petrochemical is set to commence operations in October. (CCFGroup) PX and benzene spread fell 20% and 14% QoQ, respectively in 3Q24.

Integrated PET spread outperformed in 3Q24. PET bottle chip price remained low at US$830/t (unchanged WoW) vs. 12MMA of US$912/t, indicating lackluster response to China’s announced bold economic stimulus polices. Integrated PET spread weakened 18% WoW to an 8-week low of US$103/t vs. 12MMA of US$108/t, as prices of key feedstock increased 3% WoW. Slower demand in off-peak season is expected to depress integrated product spread in 4Q24, though we believe market optimism on the announced stimulus may help hold up PET price. Integrated PET spread outperformed others in 3Q24, up 22% QoQ to US$120/t on weaker feedstock cost (PX and PTA) but still much below the 5-year average of >US$250/t.