ICIS: Currency depreciation affects Asian petrochemical industry

Recently, ICIS market analysts said that the prices of imported raw materials in Asia are rising every day due to the continuous decline in the exchange rates of major Asian countries against the US dollar, and Asian petrochemical production is facing the risk of further shrinking.

ICIS said that at present, Asian currencies, including the Japanese yen and the Korean won, have depreciated significantly, leading to soaring import costs. Although the prices of some commodities denominated in US dollars have fallen recently, buyers are still avoiding buying these commodities, which has intensified the already weak regional demand.

The main raw material of Asian petrochemical industry is naphtha. At present, end-users in Asia are reducing spot demand, partly because of the decline in the profit margin of olefin production in the region. ICIS data shows that the profit margin of olefin production in Asia improved at the beginning of September, but with the narrowing of the price difference between naphtha raw materials and ethylene, the profit margin fell back to an unhealthy level. A grease chemical producer in Asia said: "As the local currency continues to depreciate against the US dollar, most buyers take a cautious attitude, just buy a small amount of spot raw materials on demand in the market, and even reduce the purchase of spot raw materials at the cost of production reduction." Another producer said that traders and distributors may bear the brunt of the negative impact of local currency depreciation, because most manufacturers' import and export accounts are denominated in US dollars.

Market insiders said that currently, petrochemical product importers in Asia generally take a cautious attitude and exit the spot market mainly because they are worried about the growth of production costs. A buyer of fatty alcohol said: "Because of the uncertainty and the continuous strength of the US dollar against the local currency, we would rather wait and just buy a small amount of spot goods on demand than rush to build inventory. Buyers will be very cautious because we need to pay more when importing. Even if the price of imported goods denominated in US dollars remains unchanged, Asian importers will have to pay more because of the sharp depreciation of the local currency in Asia."

As the United States is expected to further tighten its monetary policy, it is expected that the dollar will continue to strengthen this year and increase inflationary pressures in Asian countries. For Asian petrochemical producers, the resulting cost increase may eventually lead to a decline in output. A market person said: "I think the dollar will continue to strengthen, so I don't want to buy a lot of raw materials in the current market environment, because it will increase our costs."

In the butyl acetate and ethyl acetate markets, Asian importers are also very cautious because of the high inventory in some parts of Southeast Asia, and the weakness of the upstream n-butanol industry further depressed the market sentiment. A market participant in Thailand said: "At present, we are not eager to buy in the market. The exchange rate of Thai baht against the US dollar is at the lowest point in the past 17 years. At the same time, it is difficult to pass on the rising prices, costs and other risk premiums to end users." In the context of high inflation, the world is facing another recession, and demand is generally weak, which may limit the sharp rise in prices. The manufacturer said that although the price of the substitute butanone was firm, the demand for ethyl acetate and butyl acetate did not improve. An Asian ethyl acetate producer said: "Concerns about economic recession, devaluation of exchange rate and global interest rate hikes are affecting enterprise confidence."

In the ethylene vinyl acetate copolymer (EVA) market, India's weak exports of manufactured products to Europe and the United States offset any benefits brought by the sharp depreciation of the rupee and suppressed the demand for EVA resin in the Indian market. An Indian EVA distributor said: "All our customers are facing difficulties in exporting, and the devaluation of the currency affects everyone." Due to the fierce competition in the shoemaking industry lacking organization in the local market of India, and the low price of finished products, the downstream shoemaking industry maintains a cautious attitude in purchasing EVA, and only purchases as needed. The EVA dealer said: "Under normal circumstances, Indian shoemaking enterprises usually have two to three months' export orders, but the current orders do not exceed 15 days. Some major shoemakers have taken the way of significantly reducing shoe prices to reduce inventory."