Product spread fell on higher naphtha cost
Petrochemical product spread fell WoW across the board on higher naphtha cost (+2% WoW) as oil price turned back up on geopolitical tension. Demand for petrochemical products also weakened on an uncertain economic outlook and volatile oil price. Sentiment on industry outlook turned more bearish pending the approval of China’s fiscal package which focuses on relieving the local government debt burden and recapitalizing the banking sector with the impact on domestic demand uncertain. We remain cautious on the sector until more impactful policies to revive China’s property sector are in place.
Average PE/PP spread still below cash cost. Product spread for polyolefins products remained subdued on market pessimism about the global economic outlook and higher naphtha cost. Volatile oil price caused by ongoing geopolitical tension kept the market from building up inventory in order to minimize downside risk from stock loss. Average PE/PP product spread, excluding LDPE, fell 5% WoW to US$324/t, below cash cost of US$350/t. Despite China’s stimulus package announced in late Sep, average PE/PP spread in 4Q24TD fell to a 10-year low of US$307/t, reflecting bearish sentiment amidst the wide demand-supply gap.
Aromatics product spread hurt by higher feedstock cost. PX and benzene spreads fell 4% and 3% WoW, respectively as feedstock cost rose while PX and benzene prices edged up only marginally. Demand for PX grew as PTA producers raised operating rate to accommodate polyester production ahead of the festive season. Benzene spread fell to an 11-month low of US$221/t vs. 12MMA of US$311/t although demand from downstream PS and ABS was stable. We expect demand for benzene to weaken on slower downstream production rates due to low production season and expect smaller downstream producers to extend plant shutdowns amidst prolonged losses.
Price of PET bottle chips back to below US$900/t. Weak demand during off-peak season and supply recovery in China after the National Day holiday depressed price of PET bottle chips (-2% WoW) to below US$880/t vs. 12MMA of US$908/t. Together with higher PTA cost on higher demand from polyester producers, integrated PET spread fell 10% WoW to US$162/t, though was still better than 12MMA of US$111/t. Ample supply and structural PET bottle chip overcapacity are still major factors that could pull back integrated PET spread in the upcoming weeks, although low PET price at below US$900/t could attract more demand for restocking ahead of 2025 demand.
