VINACHEM

Tariff concerns and ample supply continue to exert pressure on petrochemical markets in both Asia and the Middle East, with regional demand staying weak, with consumption in India unlikely to pick up until September.

AROMATICS UNDER PRESSURE AMID TARIFFS

In the aromatics market, supply is expected to be tight as increased tariff uncertainties continue `to disrupt traditional trade flows.

Mixed xylene (MX) and downstream paraxylene (PX) were in steep backwardation, where in spot prices are higher than futures prices, amid freight constraints and high US demand.

Benzene, which closely tracks falling crude prices, continued to underperform its aromatics peers.

Benzene from South Korea has not been flowing into the US and were mostly going into China, market sources said.

South Korea is a major exporter of aromatics products.

Its overall petrochemical shipments in May declined by 20.8% year on year, weighed down by sharp falls in upstream crude prices.

For solvent grade mixed xylenes, South Korea exported last month an estimated 50,696 tonnes, of which around 27% was destined for the US, according to ICIS data on 2 June.

Strong exports to the US coincide with the start of the summer driving season in the northern hemisphere, when demand for octane boosters like MX and toluene, which goes into gasoline blending, picks up.

This strong US gasoline demand expectation is supporting the supply tightness, despite weaker downstream activity in China.

Asia’s aromatics tightness is likely to persist through June-August, as market participants adapt to tariff policies and freight cost pressures from front-loading following a trade war truce between the US and China.

The US’ 90-day suspension on “reciprocal” tariffs on most countries except China ends on 9 July.

A potential escalation of the US-China trade war after the 90-day truce could intensify uncertainties, though a resolution might stabilize flows by late Q3.

For shipping, market players are expecting freight rates to start to drop again in July-August.

MONSOON ONSET DEPRESSES INDIA PLASTICS DEMAND

Prices for plastics in India are under pressure from the monsoon season, as well as more supply coming from China, market sources said.

This year’s monsoon season, which typically runs from June-September, arrived eight days early and is projected to bring above-average rainfall, said the India Meteorological Department (IMD) on 24 May.

During India’s monsoon period, manufacturing activity tends to moderate, especially the packaging sector as well as the food and beverage sector, weakening end-product demand.

Concurrently, domestic supply is ample, pushing down prices for Indian polyethylene (PE), polypropylene (PP), high-density polyethylene (HDPE) and low-density polyethylene (LDPE).

But post-monsoon season from September, demand is likely to pick up as agriculture and construction sector activity rises and the harvesting season commences.

The festive season, which includes the Diwali (Hindu Festival of Lights) running from 18-23 October, is likely to increase demand for end-products such as plastics, hence, boost production leading to the holiday.

Demand for chemicals such as PE, PP and PVC and synthetic rubbers is expected to improve after September.

India’s strong domestic consumption would shield it from the US-China tariff war, whose impact on the south Asian nation’s petrochemical trades is mostly on sentiment and not on actual demand.

China, however, has tried to push more material to India with cut prices amid the US-China trade war, as domestic demand in the world’s second-largest economy remained weak.

The country is already redirecting PE and PP to Africa and India to offset reduced US access.

But this offsetting has eased temporarily due to freight costs more than doubling in recent weeks.

GCC SEES RENEWED OPPORTUNITY IN SYRIA

In the Middle East, Syria is opening up following a regime change and the consequent lifting of sanctions by both the US and EU.

A cargo of wheat arrived at the Syrian port of Tartous for the first time in around 11 years, according to news reports.

The opening of Syria’s market – after years of civil war and international sanctions – bodes well for GCC petrochemical producers.

The GCC bloc consists of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE.

Suppliers are looking to increase their trades with Syria, as converters in the country begin running their plants at higher rates, with the possibility of new plants to be built.

On 29 May, the Syrian government inked a $7 billion strategic Memorandum of Understanding (MoU) with a consortium of companies led by Qatar’s UCC Holding to develop power generation projects.

More such agreements, particularly as trade increases, could pave the way for increased demand in the country for chemicals and chemical products, after civil war disrupted life in Syria since 2011.  – Source: ICIS