Strategy Note /
Global

Petrochemical Tracker: May 2022 – China lockdown easing supports sentiment

  • The global economy is facing major headwinds in 2022f

  • The implementation of zero COVID-19 policy in Q1 22 in China resulted in major supply-chain issues

  • In May 22, MEG prices declined 4.3% to US$635 (lowest since the last 12 months)

Iyad Khalid Ghulam
Iyad Khalid Ghulam

Head of Equity Research

SNB Capital
16 June 2022
Published by

Slowing global economic growth, supply-chain disruptions and high feedstock prices are the key headwinds facing the petrochemicals sector. However, the removal of China’s lockdown restrictions support sentiments. In May 2022, prices of most petrochemical products declined mom due to a slowdown in demand. Average HDPE and PP prices declined 3.5% mom and 4.6% mom, respectively while PP- Propane spread increased 10.2% mom to US$345.

  • The global economy is facing major headwinds in 2022f, arising from the implications of Russia-Ukraine conflict, China lockdowns, global supply chain issues and the multi-year high inflation levels. Due to the strong correlation between global economy and petrochemicals product demand, we believe the foreseen slowdown of the global economy could impact demand for various petrochemicals product and raises uncertainty for the sector.

  • The implementation of zero COVID-19 policy in Q1 22 in China resulted in major supply- chain issues. However, there are early signs of easing lockdown restrictions in China, which accompanied with government stimulus packages, are expected to alleviate the pressure gradually. As China is the largest market for petrochemicals, we expect H2 22 to be more positive for the sector.

  • In May 22, MEG prices declined 4.3% to US$635 (lowest since the last 12 months), mainly due to the rising port inventories in China. According to ICIS, the average operating rates for downstream polyester plants have been below 80% in mid-April- May 22 (vs 85% in March 22). Moverover, the additional capacities of c8.5mn tons (c+18% of current capacity) are expected to keep prices under pressure.

  • In May 2022, LLDPE, methanol, and MEG prices decreased 4.4%, 10.7% and 4.3% mom respectively, while benzene prices increased 5.9% mom. Average PP- Propane and HDPE- Propane spreads increased 10.2% mom and 14.5% mom to reach US$345 and US$362 respectivelyfollowing to the11.8% mom decline in Aramco propane prices to US$750.