Most petrochemical product spreads fell WoW, lagging more costly naphtha feedstock although some product prices were adjusted to catch up, especially polyolefins. Bearish sentiment on the global economic outlook, mainly in China, which reported poor imports and exports, suggests 3Q23 will slow further, led by construction, manufacturing and services activities. (Reuters). With most product spreads quiescent, we stay cautious but undemanding valuations could open a window for near-term accumulation of the stocks.
Average PE/PP spread fell to 9-month low. As naphtha cost rose 4% WoW to a 4-month high, tracking higher oil price, average PE/PP spread sank to a 9-month low at US$323/t (-2% WoW) vs. 12MMA of US$386/t. A 2% WoW rise in polyolefin product prices did not offset higher feedstock costs, suggesting pessimism on the persistent demand-supply imbalance regionally amidst a poor macroeconomic environment in 2H23. Hopes are that China will enact a stimulus package that would stimulate 2H23 demand in housing and construction industries (S&P Global).
PX spread weakens to a 9-week low. PX spread fell back 12% WoW to US$468/t after a surge to a 9-month high at US$534/t last week, though still higher than 12MMA of US$452/t. Despite large capacity additions in the global market from 2019 to 2023 of 9% p.a. or >28mtpa, mainly in China, PX supply has been tighter than other products during this industry downcycle given limited feedstock from oil refineries due to higher demand for gasoline blending, which held back PX plant utilization rate in Asia to only 70%. Outlook for PX in the medium term is solid as new PX capacity in this round has all started, giving a respite before future projects make progress. Meanwhile, downstream PTA and polyester capacity is expected to continue increasing. (CCFGroup)
Integrated PET spread bounces back WoW on lower feedstock cost. PET bottle chip price was stable WoW at US$930/t but integrated PET spread was driven up 39% WoW by lower feedstock cost for PX and PTA to US$119/t, far below 12MMA of US$175/t. Seasonal demand in the western market is supporting PET bottle chips as inventory level has normalized at 10-15 days, although market sentiment this year is not as positive as last year on normalized freight cost. High temperatures this year has led beverage producers to increase operating rates to accommodate higher demand and this is likely to undergird PET bottle chip demand in coming months, in our view, in addition to waning destocking in the market.
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