Petrochemicals - Mixed move for product spreads

While naphtha price was steady WoW, petrochemical product spreads were mixed, with benzene spread up 9% WoW, outperforming others. Demand for petrochemical products remains weak on an uncertain economic outlook and volatile oil price caused by the Middle East conflict. We believe the market is watching the US election closely as this could determine the sector’s outlook if the US-China trade war intensifies; at the same time, market optimism on China’s stimulus package has faded. We will stay cautious on the sector until we see more positive factors.

Average PE/PP spread edged up WoW but still feeble. Product spread for polyolefins products remained low, though rose 2% WoW to US$330/t, backed by a 1% WoW rise in prices for HDPE, though this remains below cash cost. Market pessimism about the global economic outlook and volatile oil price continues to hinder inventory build-up. Average PE/PP product spread, excluding LDPE, fell 2% QoQ in 4Q24TD to US$311/t vs. cash cost of US$350/t, suggesting that China’s stimulus package has been unable to encourage demand amidst ample supply in the market.

Benzene spread improved WoW on rising demand for restocking. After a steady weekly decline since Sep, benzene spread recovered 9% WoW to US$240/t, though still much below 12MMA of US$311/t. Demand for benzene in Asia improved slightly due to restocking ahead of planned turnarounds in several plants in Asia while downstream producers need to replenish inventories ahead of Chinese New Year in 2025. PX spread was stable WoW at US$245/t vs. 12MMA of US$383/t on abundant PX supply due to higher feedstock from oil refineries as gasoline blending demand ebbs. Demand for PX will remain weak for the remainder of this year given the slack demand season for polyester, which could reduce PTA operating rates. PX price at <US$900± failed to attract demand for restocking for next year.

Price of PET bottle chips still weak. PET bottle chip prices slid another 1% WoW to a 5-week low of US$870/t, vs. 12MMA of US$907/t, reflecting weak demand in off-peak season and supply gluts in China. Despite lower feedstock cost, mainly for MEG, integrated PET spread narrowed 5% WoW to US$154/t, much stronger than 12MMA of US$112/t. As some buyers expect the PET resin price trend to continue weak amidst oversupply and subdued off-season demand, integrated PET spread will be under pressure in the near term, in our view. Note that the average integrated PET spread in 4Q24TD was at a 6-quarter high of US$146/t (+22% QoQ).