Asian petrochemical margins rose to more than one-year high, driven by cheap oil prices and improved plastic demand from China when industrial activities have restarted, market sources informed SSESSMENTS.COM. The restart of thousands of Chinese factories boosts the use of plastics and packaging, which in turn, lifts demand for polypropylene (PP) and polyethylene (PE).
An official with a South Korean petrochemical maker said the normalization in China’s manufacturing activity had increased demand for materials related to COVID-19, such as melt-blown PP to make face masks and latex to produce medical gloves. This demand rebound comes as oil prices collapse, significantly reducing the price of naphtha, the main petrochemical feedstock in Asia.
China contributes to more than 30% of worldwide PE demand, sourcing half of it from overseas suppliers such as the Middle East, South Korea, Southeast Asia, Taiwan, and the US. Some analysts expected China to consume around 33-35 million tons of PE in 2020, relatively unchanged from 2019. Without the coronavirus pandemic, China’s PE demand is expected to be about 36-37 million tons this year.
As SSESSMENTS.COM noted, Asian naphtha prices have collapsed to their lowest in 20 years, outstripping the decrease in PE prices and boosting plastics margins around Asia. According to the Korea Petrochemical Industry Association, the average production margins for LDPE in Far East Asia are around $560/ton, rising from $400/ton in H2 2019. Meanwhile production margins for HDPE have risen to $500/ton from below $250/ton in late 2019. These margins are above the average break even point for plastics producers of $400-$450/ton.
These improved margins are expected to provide incentives for major Asian petrochemical manufacturers to increase their production. However, demand for finished products in North America and Europe remains weak, and consumption is expected to take until the third or early fourth quarter to recover.
