Lower naphtha prices boosted petrochemical product spreads WoW, but demand remained sluggish during the off-peak season. Market caution persists due to oil price volatility from the Middle East conflict and concerns over Trump’s potential intensification of the US-China trade war. This could undermine optimism about China’s stimulus boosting demand. We remain cautious on the sector until more positive factors emerge.
Research
Petrochemicals - Demand slows in off-peak season
Lower naphtha price boosted petrochemical product spread WoW, but demand for the products remained sluggish during off-peak season as market remains cautious on demand and oil price volatility from the Middle East conflict. The election of Trump also discourages industry participants as he is likely to intensify the US-China trade war after starting it in his previous term. This could destroy market optimism that China’s stimulus will uplift demand in the medium term. We remain cautious on the sector until more positive factors are seen.
Average PE/PP spread up WoW on lower feedstock cost. Polyolefin product spread rose 4% WoW to US$342/t due to the lag before prices are adjusted to align with the 2% WoW drop in naphtha price. Market pessimism on the global economic outlook and volatile oil price continues to discourage demand for restocking. We believe PE/PP spread will weaken in coming weeks as naphtha crackers in Asia restart production after recent maintenance shutdowns. Average PE/PP product spread, excluding LDPE, fell 4% QoQ in 4Q24TD to US$316/t vs. cash cost of US$350/t.
Aromatics prices down WoW on low demand, higher supply. Lower demand from downstream and weaker oil price pushed PX price down 2% WoW and benzene price down 3%. Lower demand for PX came from maintenance shutdowns of PTA plants in the region, pulling PX spread over naphtha down 1% WoW to a 3-year low of US$242/t. Demand for downstream benzene also slid on higher inventory after replenishment over the last few weeks ahead of planned turnarounds in in Asia and expectation freight cost will increase due to persistent geopolitical tension.
Integrated PET spread depressed by lower PET price. PET bottle chip price slid 2% WoW to a 6-week low of US$850/t vs. 12MMA of US$906/t on slower demand in off-peak season, supply gluts in China and lower oil price. We believe buyers are holding back on purchases amid ongoing uncertainties around end-consumer demand, weighed by economic challenges. Spread was also hurt by a 2% WoW rise in cost for feedstock MEG due to maintenance shutdowns, which pushed integrated PET spread down 10% WoW to US$139/t, still much stronger than 12MMA of US$112/t. High logistics costs continue to widen product spread between EMEA and Asia with the gap in Oct at US$264/t, the same as the 5-year average but lower than the US$304/t in 3Q24.