 Petrochemical product spread improved WoW nearly across the board last week on lower naphtha cost (-1% WoW) and product price adjustment to catch up with higher feedstock cost in previous weeks. PP and benzene product spread are in the spotlight this week, but this is because of their unremitting weakness over past months that attracts buyers. We maintain our view that market participants should adopt a wait-and-see approach with hand-to-mouth buying strategy amidst more positive signs from China’s stimulus. We expect the spread recovery to be short-lived and reaffirm our cautious stance. Key to watch is 2Q23 earnings and management guidance on 2H23 outlook. Average PE/PP spread up 5% WoW. While naphtha cost eased 1% WoW, price of some of polyolefin products rose 1-3% WoW to catch up with higher feedstock costs in previous weeks. This widened average PE/PP spread by 5% WoW to US$346/t vs. 12MMA of US$389/t. We believe the better spread will be short-lived on persisting demand-supply imbalance regionally, although sentiment will be boosted by China’s stimulus pledge, mainly for the ailing property sector. At the same time, slower demand growth and excess supply due to China’s self-sufficiency policy for petrochemical products will continue to weigh on the industry in the medium term. Benzene spread recovers to 7-week high. Benzene price rose 4% WoW to an 8-week high of US$850/t as demand from styrene and other benzene derivative products, particularly phenol, in China is improving. Several producers in China restarted in mid-July which gradually reduced benzene inventory in China. This also boosted benzene-naphtha spread to surge 16% WoW to a 7-week high at US$248/t outpacing 12MMA of US$227/t. China's benzene imports are expected to increase in August, possibly opening an arbitrage window, considering the strength in China and the closed Asia-USGC arbitrage window. (CCF) PET price starting to creep up, boosting integrated PET spread WoW. PET bottle chip price edged up 1% WoW to US$930/t, the first WoW increase since Apr. We believe this suggests that there remains room to raise selling price as inventory destocking is waning. Together with relatively stable feedstock cost, integrated PET spread rose 9% WoW to US$121/t, still much weaker than 12MMA of US$183/t. The industry is closely watching for signs of export market recovery, mainly the US, as local inventory digestion is basically complete. (CCF) |
