Petrochemical - Naphtha cost plunges to 16-month low

Petrochemical product spread was aided by a 6% WoW fall in naphtha cost to US$618/t, the lowest since Jul 2023, due to lower oil price and lower off-peak demand from naphtha crackers. Concern on petrochemical industry outlook is likely to increase in the medium term given the possible heating of the US-China trade war, which may extend the current downcycle. Meanwhile, the recent stimulus measures in China have failed to revive market sentiment toward the sector. We stay cautious on the sector despite undemanding valuation.

Average PE/PP spread widened WoW despite lower price. Polyolefin product spread rose 9% WoW to US$430/t although product price slipped 1% WoW on lower naphtha cost in tandem with weaker oil price. The wider spread is unlikely to continue given the lag in product price adjustment to factor in lower feedstock cost. We believe the uncertain demand outlook and volatile oil price will continue to discourage demand for PE/PP, whose demand-supply imbalance is expected to persist over at least the next 1-2 years.

PX price down to three-year low. PX price fell 3% WoW to a three-year low of US$870/t vs. 12MMA of US$1,058/t, depressed by slower downstream demand and weaker oil price. This also reflects lower seasonal demand for gasoline blending in 4Q that led integrated oil refineries to maximize feedstock for PX production to offset low gasoline crack spread. PX demand was supported to some extend by downstream PTA, where operating rates stayed high to accommodate polyester production. Benzene price edged down 1% WoW to an 11-month low of US$870/t on weak downstream demand despite supply loss from unplanned shutdowns of several plants in China. Lower feedstock naphtha cost improved PX spread by 5% WoW and benzene spread by 14% WoW.

Integrated PET spread improved WoW. PET bottle chip price declined another 2% WoW to US$830/t, the lowest since Jan 2021, vs. 12MMA of US$905/t, reflecting slower demand and ample supply in the market. Lower oil price also continued to reduce market appetite to restock even though current price is below US$900/t, as buyers remain cautious about demand and the possible impact of a new round in the trade war between the US and China under the new administration. Integrated PET spread rose 2% WoW to US$142/t as feedstock costs declined 3% WoW.