Strategy Note /
Saudi Arabia

Petrochemical Tracker: October 2022

  • Several currencies including the Chinese yuan, Japanese yen and the South Korean won depreciated sharply against the US$

  • PE demand in China started to improve in Sep 22 driven by restocking activities

  • MEG demand remained weak due to lockdowns in China and high inflation levels

Iyad Khalid Ghulam
Iyad Khalid Ghulam

Head of Equity Research

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SNB Capital
10 October 2022
Published bySNB Capital

In September 2022, the prices of most petrochemical products continued to trend downwards impacted by the slowdown in the global economy, high inflation levels and strong US$. Average PP prices remained flat mom, while HDPE prices declined by 2.3 % mom. Urea surged 16.6% mom, while methanol and MEG were up by 2.9% mom and 1.5% mom respectively. PP- propane spread increased 7.3% mom to US$334. Product prices declined by more than 15% in Q3 22 which we believe indicate a weak earnings season for petrochemical producers in Q3 22.

  • Several currencies including the Chinese yuan, Japanese yen and the South Korean won depreciated sharply against the US$, resulting in higher import costs and partially offsetting the positive impact of lower product prices. We believe strong US$, along with high inflation levels and slowing global economy will put pressure on demand and could lead to production cuts for some global producers.

  • PE demand in China started to improve in Sep 22 driven by restocking activities. However, supply is expected to increase as 2 new plants will start operations in Q4 22 while turnaround activities are limited. PE prices in Southeast Asia begun to improve towards the end of Q3 22 as producers reduced outputs to maintain margins. As per ICIS, PE plant shutdowns in Asia (ex-China) in Jul- Sep 22 resulted in an aggregate capacity loss of 2.4mn tonnes/year.

  • MEG demand remained weak due to lockdowns in China and high inflation levels. As per ICIS, operating rates of China’s polyester plants (main user of MEG) stood at c80%. MEG inventories declined to 1mn tonnes in Sep 22 (vs highs of 1.2mn in Jun 22) due to delayed shipments and shutdowns, which we believe might provide support to prices going forward.

  • Urea prices remained strong, up 16.6% mom. Demand outlook is positive in Q4 22, as India is expected to purchase a sizeable volume while Europe, South America and Southeast Asia are expected to make purchases which we believe could sustain strong pricing trends.

  • In Q3 22, average HDPE and PP prices declined 5.0% yoy ( -14.6% qoq) and 10.8% yoy ( -14.7% qoq) respectively, while HDPE-propane and PP-propane spreads fell by 34.4% yoy(+1.0% qoq) and 43.7%yoy (+1.6%qoq) respectively. We believe the quarterly decline in prices and spreads will lead to a significant decline in profitability in Q3 22.