As more and more economies gradually re-open their markets and demand picks up, the Asian petrochemical market is showing signs of life following the recent rise in crude oil prices. But experts say the overall outlook for the market remains uncertain.

Oil prices Rebound

The brent and U.S. WTI benchmark crude futures contracts hit highs of about two-and-a-half months as international oil prices rebounded, spurred by a combination of slowing supply and rising demand. On May 22, NYMEX WTI crude for July delivery settled at $33.25 a barrel, up nearly 100% from its intraday low on April 21. It was the highest settlement price since March 12.

ICE July brent, the global benchmark, settled at $35.13 a barrel, up more than 75 per cent from an intraday low on April 22. With the fundamentals of supply and demand improving, ABN Amro expects oil prices to likely return to $40 - $50 a barrel by the end of this year and next.

Naphtha is a major raw material for petrochemical production in Asia, and the price of naphtha in The Asian market has rebounded strongly with the sharp rebound in international oil prices. The benchmark naphtha price in Asia closed at $292.67 / ton (CFR, Japan) on May 22, having rebounded nearly 80% from the price on April 1.

Petrochemical prices are up

Spot prices in the Asian ethylene glycol market, which has risen more than 20 per cent since the end of March, have been driven by firm crude oil, naphtha and ethylene prices, according to Actin. Upstream ethylene prices in North-East Asia rose sharply in the week to May 15, boosted by Chinese restocking. Downstream Ethylene glycol polyester plants in China have increased production, with an average operating rate of 84 percent, up from 75 percent in early April.

In the case of PVC, the market has become active due to steady spot demand from the Chinese market, the easing of lockdown measures in India, and the recent rise in the price of raw material ethylene.

In the EPDM market, demand is expected to pick up slowly as national markets reopen and global carmakers reopen factories in Asia, Europe, Latin America and the US.

Demand for ethanolamine is picking up, especially in Southeast Asia, the Philippines, Thailand and Vietnam. Spot prices for monoethanolamine and diethanolamine rebounded by about us $20 to US $40 per ton to US $905 per ton (CFR) and US $860 per ton (CFR) in the week ended May 15 in Southeast Asia.

In the titanium dioxide market, it may take some time for demand to recover as downstream manufacturers, including those in the paint and coatings industry, continue to operate at lower operating rates or have previously closed.

Chinese demand picks up

China was the first country to emerge from the blockade in March and is now facing strong increases in stockpiles of various chemicals. Because China, the first country to emerge from the lockdown, has become a favorite destination for global petrochemical exporters amid sluggish demand elsewhere in the world.

China's industrial production rose 3.9 per cent in April from a year earlier, ending three consecutive months of decline. John Richardson, senior Asia analyst at Chinason, said the sustainability of China's economic recovery depended on another large-scale outbreak of coVID-19. So far, so good.

Growth in China, the world's second-largest economy, is expected to slow sharply but may not contract for the full year, according to the International Monetary Fund's April World Economic Outlook. China's economy is expected to grow 1.2 per cent this year, down from 6.1 per cent in 2019.

"China still faces weak consumer confidence and a sharp fall in export orders," Mr Richardson said. China's GDP may not achieve positive growth this year, or even negative growth. But the government is likely to embark on a massive new round of infrastructure investment to further improve credit availability. In the first quarter of this year, credit availability in China was already increasing dramatically."

Moreover, while the official lockdown in most Asian countries has been extended until the end of May, restrictions on the movement of businesses and people are gradually being eased and economies are beginning to recover slowly.

Uncertainty remains

The Asian Development Bank estimates that the coVID-19 outbreak has plunged the global economy into recession, with total economic losses estimated at $8.8 trillion, or about 10% of GDP.

The adverse impact of the coVID-19 outbreak on the economy is partly reflected in the first-quarter GDP figures. The situation is widely expected to worsen in the second quarter of 2020. As markets reopen, the recent rise in crude prices is likely to be short-lived as the drop in global demand is expected to be far greater than the cuts planned by major oil producers.

Mr Richardson said that in terms of global conditions, oil prices had risen with the stock market and it was unclear whether the process of lifting the blockade would go smoothly. The INTERNATIONAL Monetary Fund is likely to cut its forecast of a 3% contraction in world GDP by 2020.