The Asian petrochemical market is stuck in overcapacity

High inventory and weak demand

　　Due to sluggish demand, downstream factories in Asia continue to operate at lower operating rates. Most manufacturers and end users are currently facing high inventory constraints, and the entire petrochemical market is currently struggling to solve the problem of oversupply. Moreover, in the face of a new round of epidemic that may come, overall economic activities are restricted, especially in Indonesia, the Philippines, and India, where the number of infection cases continued to surge. The economic indicators of major Southeast Asian countries contracted sharply in the second quarter.

　　 High inventory is difficult to digest

　　 John Richardson, senior consultant of AnXunsi, said: "Currently, China's petrochemical market has exceeded demand. The production and net import data of some petrochemical products in the first half of the year show excess inventory."

　　 In the para-xylene (PX) market, although the weak production margin has caused some producers to cut production, the oversupply situation is expected to continue until September. As the downstream purified terephthalic acid (PTA) facility is experiencing a peak period of shutdown for maintenance in August, the current PX inventory in the Asian market is high. The demand from downstream polyester markets such as textiles and clothing is being dragged down by the aggravated epidemic in India and Indonesia. In the short term, demand recovery in these two countries will be difficult to achieve.

　　As the price of acetone is still in a downward trend, the market sentiment is pessimistic, and buyers have abnormally sufficient inventory. Isopropyl alcohol (IPA) is also expected to be in excess supply. The supply of ethanolamine is sufficient to meet the weak demand. The market prospects of methyl ethyl ketone (MEK) depend to a large extent on China's short-term demand. With the weakening of Chinese demand, the price support of polystyrene (PS) markets in the Middle East and South Asia will gradually weaken.

　　 Seasonal demand does not quench thirst

　　 In the methyl tertiary butyl ether (MTBE) market, due to China’s reduced export volume and strong domestic demand, the supply of linear alkyl benzene (LAB) in Asia is facing tightening. China's domestic demand for polyvinyl chloride (PVC) may continue at least until the National Day holiday in October, but with the arrival of winter, construction activities will slow down, and demand is expected to gradually decrease thereafter.

　　 In August, the shipment and export of Chinese ethyl acetate was restricted. In the butyl acetate market, demand in Southeast Asia is still recovering as some countries are still under lockdown. However, Indonesia, Malaysia, Singapore and the Philippines have all reported that their gross domestic product (GDP) contracted unprecedentedly in the second quarter due to the lockdown measures taken in response to the epidemic. Among them, Indonesia fell 5.3% year-on-year, Malaysia fell 17.1% year-on-year, Singapore fell 13.2% year-on-year, and the Philippines fell 16.5% year-on-year.

　　Poor prospects for demand recovery

　　Asian petrochemical products spot market activities are constrained by high inventories of producers and end users. Ann Sun, an analyst at AXIS, said demand for synthetic rubber has faded due to rising prices. She said: “We have seen tire exports pick up during the global blockade. The current buying interest in synthetic rubber has weakened, just because of the increase in inventories from April to July, not because of the slowdown in end consumption.” She added that due to buying Homes have ample supply, and new production capacity will be put into production from August to October. It is expected that the replenishment of inventory before China’s National Day will not be as strong as in the past few years.

　　 AXIS analyst Amy Yu said that in the polyethylene (PE) market, since the price slump in the second quarter, many Chinese buyers have formed high inventories. These buyers will digest the inventory and then replenish it. This will limit some demand in September. Taking into account the high temperatures in most parts of China, PE demand also experienced seasonal weakness in August. Amy Yu said that there may be some rebound in PE consumption in September, when the production of downstream industries will enter the peak season, such as agricultural film, construction and manufacturing. Among them, many companies will need to replenish PE cargo before the National Day holiday in October.

　　 AXIS analyst Joey Zhou said that polypropylene (PP) buyers are still cautious about replenishing inventory due to the possibility of a second wave of epidemics in major Southeast Asian markets and increased supply. Some provinces in China are affected by floods, and PP demand for woven bags and pipes is expected to improve. As construction activities resume, the demand for PP will also be pushed up.