Most petrochemical product spreads fell WoW on more costly naphtha feedstock although some product prices were adjusted to catch up, especially aromatics. Sentiment remains bearish, as low domestic consumption continued to weigh on global economic growth. Falling new orders, bleak employment prospects and high inventory levels point to subdued factory activity in coming months (Reuters) and will continue to shadow the petrochemical industry in the medium term. We stay cautious on the sector although undemanding valuations could attract near-term accumulation of the stocks.
Average PE/PP spread down WoW. As naphtha cost rose 5% WoW to a 13-week high along with a rise in oil price, average PE/PP spread slid 5% WoW to US$329/t vs. 12MMA of US$388/t despite a 1-2% WoW rise in price of polyolefin products to catch up with higher feedstock costs in previous weeks. As expected, the better spread was short-lived in view of the persistent demand-supply imbalance regionally although market sentiment was boosted by China’s stimulus. We expect product spread to remain weak in 2H23 on supply gluts and weak global demand due to an uncertain economic outlook.
PX spread widens to 9-month high. After a brief pause last week PX spread widened 4% WoW to US$534/t, far above 12MMA of US$450/t. PX spread has continued to outperform other products during this downcycle despite the rapid capacity startup cycle for the product since 2019 (largely in China). In this cycle, global PX capacity increased by as much as 28.25mtpa (including new capacity startups and expansion of old capacity), with those in China accounting for 95% of the increase. (CCFGroup) Benzene spread also edged up 1% WoW to an 8-week high of US$249/t as demand from styrene and other benzene derivative products, particularly phenol, in China is improving.
Integrated PET spread down to 8-month low. PET bottle chip price was stable WoW at US$930/t but higher feedstock cost for PX and PTA depressed integrated PET spread to only US$90/t (-25% WoW), the first week it has fallen below US$100/t since Dec 2022 and well below the 12MMA of US$180/t. The weak demand seen in early summer is unlikely to reverse course in the rest of 2023 even in the US. (S&P Global) The market does believe inventory destocking is waning which could open room to raise prices in the near term.
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