‘Tight’ petrochemical market boosts product prices

Jeddah—Petrochemical product prices moved higher in July despite the fall in crude prices due to a tight supply scenario on the back of production outages, according to a report. Ethylene, polyethylene, polystyrene, propylene and polypropylene prices rose in the range of 1-5 percent month-on-month, whereas feedstock prices (naphtha, propane) dropped, indicating higher spreads and margins for petrochemical producers in July, Al-Rajhi Capital said in a recent research report. Planned maintenance shutdowns, delayed turnarounds and unplanned shutdowns have tightened the petrochemical market, forcing buyers to buy from the spot market, pushing prices higher, said the report. Meanwhile, the manufacturing activity in China expanded for the first time since February 2015.
The manufacturing activity in the US and Europe slowed down, but remained in the expansion zone. Benchmark crude prices fell in July (Brent: -13.2 percent m-o-m; WTI:-15.1 percent m-o-m) as investors were concerned over the supply glut owing to an increase in OPEC crude production coupled with rise in Canadian supplies. The increase in US oil rig count too, dragged prices lower.
Crude oil prices fell 13.2 percent in July as OPEC crude production rose to its highest level since August 2008, led by Nigeria and Iran, raising oversupply concerns. Crude oil supply also increased from Canada, as production recovered after wildfires had paralyzed production two months ago. Oil prices were, too, driven down by lower-than expected drop in US crude inventories in July. Brent October future contract closed the month at $43.53 per barrel, down 13.2 percent m-o-m, while the WTI September future contract dropped 15.1 percent m-o-m. US rig count continued to rise in July (374 as of July 29 vs 330 at the end of June 2016), suggesting that US production may increase in the coming months.
Petrochemical prices rose in July after witnessing a continuous decline over the previous months. Ethylene prices gained 1.9 percent m-o-m, while polyethylene prices, too, climbed (HDPE: 3.5 percent m-o- m, LDPE: 4.3 percent m-o-m) in July. Polypropylene and propylene prices rose 4.4 percent m-o-m and 1.4 percent m-o-m, respectively. However, fertilizer prices continued to fall on the back of oversupply (Ammonia -14.0 percent, Urea -13.8 percent). Aromatics like polystyrene (+5.2 percent) and benzene (+4.2 percent) also gained.
Ethylene Di-Chloride (- 12.5 percent) prices declined over the month, while its downstream product polyvinyl chloride (+5.2 percent) gained. Methanol (-1.4 percent) and its downstream MTBE (-14.2 percent) were also relatively weak in July. On the feedstock front, naphtha prices were comparatively weak in July (-17.6 percent m-o-m), resulting in higher margins for petrochemical companies. For the month of August, Aramco has reduced propane prices to $385 per ton (-3.4 percent) and butane to $290 (-6.5 percent).
US July PMI came in at 52.6 as compared to 53.2 in June, below the consensus estimates, recording its fifth consecutive expansion. The lower PMI was majorly due to weak employment and new export orders. Euro zone PMI dropped to 52.0 in July from 52.8 in June, largely due to sluggish growth in new orders and incoming new business. The Caixin PMI for China entered the expansion territory for the first time since February 2015, rising to 50.6 in July (48.6 in June, 2016) on back of renewed growth in output, purchasing activity and new orders.—Agencies

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