ICIS: Asian petrochemical markets in a bear market

Recently, ICIS released a report showing that the Asian petrochemical market is in trouble as the risk of economic recession continues to increase, and the bearish sentiment on petrochemical product prices has spread across the board. Rising economic concerns such as the Russia-Ukraine conflict and sanctions against Russia, coupled with concerns about a spiralling inflation, continued to weigh on sentiment. Raising interest rates by central banks around the world to combat inflationary pressures has also sparked fears of a global recession.

The Asian ethylene glycol market fell sharply this week to its lowest level since the end of 2020, due to the slump in crude oil prices and weak downstream demand. With terminal demand still sluggish amid concerns over global inflation and a recession, Asian polyester producers have started a new round of production cuts after curtailing operations in April due to the pandemic. Continued supply cuts have not stopped the recent price declines, as the overall slowdown in demand outweighed the supply cuts.

Sentiment among Asian petrochemical buyers has been subdued by a number of factors, including higher import costs due to the depreciation of the Korean won and the Thai baht against the U.S. dollar. Concerns that rising interest rates and working capital pressures could continue to weigh on downstream demand in the third quarter further weighed on the momentum of Asian downstream customers to replenish petrochemical inventories.

Asia's dichloromethane market will face oversupply as India's booming new capacity could soon make the country an exporter. In the second quarter of 2022, the Asian spot price of methylene chloride fell rapidly to the lowest level in more than a year, after a long-term upward trend that began in the fourth quarter of 2021.

The Asian EPDM spot market is likely to remain bearish as demand has yet to pick up. In the import-dependent Southeast Asian and Indian markets, the cost-plus-freight (CFR) price of EPDM rubber fell by 10% to 12% between May 2 and the end of June, according to ICIS data.

Producers of recycled polyethylene terephthalate (R-PET) in the Asian market have started discussing cargoes for July delivery amid weak market demand, as end-user demand in various countries is dampened by inflation. Demand for fiber-grade R-PET flakes and pellets for low-end applications has been significantly impacted as processors opt to increase their purchases of more price-competitive PET materials. Demand for R-PET cargoes for fiber applications is expected to shrink further.

The ethanolamine market in East and South Asia will continue to trend downward as demand remains low. Buyers remain reluctant to buy in bulk as most expect the market to soften further.