According to news from Axioms Singapore on April 9, as the US and European markets plunged and the economy fell into recession, Asia may eventually become a dumping ground for many chemicals around the world.

Since the global outbreak of the novel coronavirus, the global petroleum and chemical trade flows have rapidly changed. However, as the prices of many petrochemical products in Asia continue to fall to record lows, the arbitrage window for exports from the European Union and the Americas to Asia is rapidly closing, and the current arbitrage profit rate for shipping ocean cargo to the Asian market is no longer feasible, or right Not attractive for traders.

The oversupply Asian markets are also unlikely to absorb the inflow of ocean-going goods or arbitrage goods from the European Union and the United States, because many countries around the world have imposed blockades, resulting in poor economic indicators and almost halting business activities. In an intertwined global economic environment, it is also difficult for China to stand alone.

Diene exports target the Chinese market

According to Rachel Qian, an analyst at Axioms, due to sluggish demand in Europe and the United States, diene suppliers and traders are planning to export methanol goods to the Chinese market. Qian said that in addition, due to the blockade of India, a key methanol market, methanol cargoes from the Middle East, especially Iran, were also transferred to China.

Qian added: “This will lead to increased competition between imported goods and Chinese local goods, and may cause some Chinese domestic manufacturers to reduce their installation operations or shut down their installations.”

Asian butadiene arbitrage window quickly closed

With the collapse of demand in the United States and Europe, a large number of ocean-going butadiene goods from the West flooded into the Asian market, forcing Asian traders to sell their goods at lower-than-expected prices. As a result, the Asian butadiene market fell sharply in early April.

In the United States, sales of butadiene are small because end-use companies are still closed. The novel coronavirus epidemic is expected to plague the butadiene value chain in the United States at least in the first half of the year. Today, domestic butadiene production in the United States is flowing to Asia. Asia has become one of the few export markets for US and European producers, but this is unlikely to be a long-term solution.

However, as the prices of many petrochemical products in Asia continue to fall to record lows, the arbitrage window from the EU and the Americas to Asia is rapidly closing. The current arbitrage margin is neither feasible nor attractive enough to attract Asian traders to import goods from the European Union and the Americas.

Due to ample domestic supply, China's demand for imported butadiene has fallen sharply. With the downturn of the downstream synthetic rubber market and the decline in demand for acrylonitrile butadiene styrene copolymer (ABS), the market's spot demand for butadiene has weakened.

Propylene ocean cargo or shipped to Asian markets

The supply of propylene in Asia may be surplus in the short term, because downstream producers are considering further reductions in plant operating rates. Propylene cargoes from South America and India may be shipped to Asian markets due to insufficient downstream demand.

In China, domestic propylene producers are trying to increase the operating rate of their installations despite the recent sharp drop in raw material costs. The Chinese market's demand for imported propylene will depend on the price of domestic goods. According to current prices, imported goods are cheaper.

The Mixed Xylene Arbitrage window opens

As the new coronavirus pandemic caused the price of aromatics in the United States to plummet, and demand in Asia was relatively strong, the arbitrage window for US mixed xylene exports to the Northeast Asian market reopened a few years later.

On April 6, the price of mixed xylene in the United States was about US$270/ton (FOB U.S. Gulf of Mexico), while the price in the Asian market was US$355 (FOB Korea). The price difference between the two was US$85/ton. The shipping cost between the United States and Asia is estimated to be 70 to 80 US dollars per ton. According to market sources, due to the poor prospects of the US market, US sellers of mixed xylenes even offered discounts on the basis of reported prices.

In April of this year, Lotte Chemical of South Korea purchased a batch of mixed xylene cargoes of 30,000 to 40,000 tons from the United States, which is expected to arrive in the Korean market at the end of May. Other end users in Asia are also considering buying spot from the United States.

Asian diene prices are weak

Ethylene suppliers outside of Asia continue to look for buyers of goods arriving in May and June in the Asian market because of the decline in demand in their domestic and neighboring markets.

Up to now, more than 90,000 tons of ethylene ocean freight delivered from April to the first half of June have been sold to the Asian market. However, as Asian ethylene spot prices weaken further, there are fewer arbitrage opportunities for sellers seeking to export ethylene goods from America and Europe to Asian markets.

Content source: Pang Xiaohua of Jingmen Petrochemical Company, translated from ICIS, diene manufacturer