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India Lockdown: Domestic Petrochemical Markets Hit Record Lows

Several petrochemical products in India hit record-low, according to S&P Global Platts data, after the country imposed a nationwide lockdown from Wednesday for 21 days to fight the fast spreading coronavirus outbreak. Petrochemical plants will likely be shut down or lower operations due to a lack of labour and limited logistics, market sources said. However, some other sources said that certain petrochemical operations would be exempted by the lockdown as the government sets some exceptions for industrial establishments. According to the government statement, industrial establishments will remain closed with exceptions of manufacturing units of essential commodities, as well as production units, which require uninterrupted operations. Prices PTA CFR India Wednesday (March 25) fell $25/mt week on week to be assessed at a record-low of $460/mt Wednesday. FOB Northeast Asia PET price fell $40/mt week on week to hit a record-low of $700/mt Wednesday (March 25), mainly due to bearish upstream markets. Indian buyers continue seeking PET bottle chips for a lower price. Infrastructure Crackers and downstream plants in north and west India continue to operate. Producers such as state-owned IOC and private-sector Reliance Industries (RIL), which operate crackers and downstream units producing paraxylene (PX), purified terephthalic acid (PTA), monoethylene glycol (MEG) and polymers in northern and western states, have maintained operations. IOC operates an 800,000 t/yr cracker in Panipat, while state-controlled gas distributor Gail produces 900,000 t/yr of ethylene from its two crackers in the northern state of Uttar Pradesh. RIL operates four crackers in the western states of Gujarat and Maharashtra that can produce up to 3.5mn t/yr of ethylene, which is used mostly for its captive downstream production. India's Haldia Petrochemicals will likely shut down its naphtha-fed steam cracker in Haldia after the lockdown. The cracker is able to produce 670,000 mt/year of ethylene, 425,000 mt/year of propylene, and 97,000 mt/year of butadiene. India's ONGC Petro additions Ltd, or OPaL, will shut down its steam cracker in Dahej, according to market sources. The steam cracker is able to produce 1.1 million mt/year of ethylene. OPaL will also shut down 115,000 mt/year butadiene unit at Dahej. The overall run rate of Indian polyester sector fell to around 10%-20% after the lockdown, from around 70% in early-March and 40% recently, due to weak demand. The operating rate could potentially drop further soon. Monoethylene glycol, a key feedstock for polyester, is facing limited storage space, with some Indian producers cutting production rate to 50%, while others trying to explore exports, an Indian MEG producer said. Port operations in India continue normally, although a shortage of port workers and trucks has impacted efficiency, trade sources said. But the partial shutdown of non-essential services in all major states may hinder transportation and distribution of chemicals such as methanol and polymers. Chemicals are supplied through a land-based distribution network covering India's 29 states. The Maharashtra state government on 20 March announced a shutdown of businesses in the petrochemical trading hub of Mumbai, with most people expected to work from home. Polymer demand within India has weakened as well, hit by the domestic slowdown and declines in the rupee against the US dollar. The Indian currency has fallen sharply in the past week to around Rs76/$1, pressured by the curfew announcement and the partial closures across the country. China Commodity Output Recovers, Wuhan Lockdown To End China is ramping up production of oil, petrochemicals, metals and coal as the coronavirus outbreak comes under control, with a lockdown in hardest-hit Wuhan set to be lifted by April 8. But demand may take longer to recover. Several other provinces have lowered their coronavirus emergency levels, paving the way for an economic recovery. And the government said 98% of the companies listed on its domestic stock exchanges have now resumed operations, helping boost trade and supporting domestic fuel oil demand. Impact of India's lockdown on China PX and PTA industry India's Directorate General of Shipping (DGS) has imposed quarantine on shipping vessels from ports of infected countries including China for 14 days starting from the date of departure from the infected ports. Relationship between India and China in terms of PX and PTA PX India takes up to about 8% of world's total PX capacity, as world's third largest PX producer following China and South Korea. India is one of the major suppliers of PX to China. In 2019, China received 1.28 million tons of PX from India, accounting for about 9% of the total. It made India the third largest origin of China's PX imports, following South Korea and Japan. PTA India's PTA capacity is 6.18 million tons per year. However, due to India's anti-dumping policy on China's PTA, China's PTA exports to India is not too large. In 2019, China's total PTA exports to India were around 41,000 tons, accounting for about 6% of China's total exports. Impact of lockdown in India It is reported that three petrochemical plants in India have declared force majeure, mainly involving olefin products. At present, no PX suppliers have announced force majeure or reduction in production. MCPI's 1.2 million tons/year PTA plant has announced force majeure. It is reported that the company is discussing the specific time of close. Some South Indian yarn mills have announced production suspensions, and some ports have announced force majeure on March 25. According to market sources, India's polyester polymerization rate has also dropped significantly. Therefore, the impact of India's lockdown in the future may further increase. For PX, the direct impact that it may bring is on its exports, which depends not only on India's port policy, but also on the overall local demand in the later period. Similar to China, the impact of lockdown on downstream consumption is more obvious. If the impact on the export ports and shipping is not significant, unless the PX suppliers determine to significantly reduce production, the possibility of an increase in PX exports may still exist. For PTA, although the export volume that directly affects the Chinese mainland may not be obvious, the main PTA import origins for India are South Korea and Taiwan (the average monthly total imports of India from the origins in 2019 totaled 43,000 tons). If India could not consume the amount, it means that South Korea and Taiwan need to find other export destinations. Mainland China is also an attractive market. For China, India is currently the main export market of some polyester products. India's PET bottle chip imports from China account for 9% of total China's exports, the largest importer. India accounts for 8% of total staple fibre exports of China. Polyester POY and industrial yarns exports to India also exceeded 5%. India ranks among the top five major importers of these products. So, a lockdown, or a subsequent slowdown in India's polyester sector will impact the Chinese polyester chain too. Asia petrochemicals outlook Asian petrochemical markets will likely remain subdued this week as the escalating coronavirus pandemic in the US and Europe continues to cloud the global demand outlook. May ICE Brent crude futures kicked off trading Monday (March 30) in the range of $23/b, prompting a pessimistic reaction from petrochemical market participants. Isomer-grade mixed xylene prices could also see more downward pressure this week as Chinese refineries were expected to increase run rates to capitalize on low crude oil prices, which may lead to increased production of MX along with other aromatics products, market sources said. "Sinopec will increase their operating rate, the market will be oversupplied," an MX trader in China said. No demand across polyester chain Demand destruction was being seen along the entire polyester chain in Asia, including pressuring Asian purified terephthalic acid prices lower. India's 21-day nationwide lockdown has almost put a stop to PTA demand in India and Northeast Asian producers were under pressure to adjust operations to manage rising stocks. The outlook for monoethylene glycol was bleak with demand remaining elusive amid nationwide lockdowns. Coal-based sellers in particular were under pressure. Asian prices were at record lows amid demand destruction caused by coronavirus containment measures and low crude prices. US petrochemical logistics holding up so far Companies in the US petrochemical supply chain said they are packaging and moving goods as normal so far amid the coronavirus pandemic response, though they expect a coming shortage of empty containers to fill with export-bound material. Ocean services from Asia and Europe declined in February and this month as China, South Korea and other countries implemented shutdowns and other measures to combat the coronavirus disease spread, which reduced incoming import containers to be unloaded and then reloaded with exports. Coronavirus affecting EMEA petrochemicals markets As infection rates continue to rise and European nations restrict movement in an attempt to limit the spread of the coronavirus pandemic, the European petrochemical industry is facing unprecedented challenges and uncertainty. With borders across Europe closing, supply chain concerns are rising. "The market is caught between a rock and a hard place, demand destruction as a result of the coronavirus pandemic and the OPEC price war which could see crude oil prices below $20/b in the coming months. Supply chain and logistics constraints could result in producers having to cut rates regardless of margins. We are in unchartered territory but the risk for the next three to six months are still to the downside," Senior Manager Petrochemical Analytics at S&P Global Platts Rob Stier said. Coronavirus affects Americas petrochemicals markets While chemical manufacturing is among sectors deemed critical to combat the spread of the coronavirus, markets continue to face serious challenges as end-users step back and cancel or postpone orders, unable to gauge demand in the coming weeks and months amid increasing stay-at-home orders throughout the Americas. Some polymer markets are showing the strain, as export markets want less US polyvinyl chloride, a construction staple and key economic indicator, and US prices for polyethylene terephthalate, the plastic used for beverage bottles, reached a 14-year low as its feedstock prices take sharp dives. Market analysts expect prices for many petrochemicals and polymers to decrease over the next two months and set new multi-year, if not record, lows. Aromatics prices have fallen along with record-low gasoline prices, taking PET down as well. Trade flows India's decision to lock down the entire country of 1.3 billion people for 21 days has cut largely cut off US export flows in the region as those from other countries in Asia and elsewhere seek other homes for petrochemical cargoes. Brazilian petrochemical industries can work with no restrictions, exempt from a decreed 15-day quarantine in the São Paulo state. Closures of the Mexican and Canadian borders to non-cargo movements has led to long lines of trucks waiting to cross into the US, but trade continues. Pricing The US domestic polyethylene terephthalate (PET) contract price fell 5 cents Wednesday (March 25) to 49.5-50.5 cents/lb ($1,091-$1,113/mt), its lowest level since Platts launched the assessment in February 2006, based on a lower feedstock monoethylene glycol contract and stable upstream purified terephthalic acid (PTA) contracts.