July has been a turning point where European petrochemical market is finally getting back on tracks. There are still some heavily impacted sector such as automotive, tourism and aeronautics but generally most sectors are coming back to normality.
Regarding raw materials we are witnessing a general stability . Naphtha since July is above 360 $/MT as well as Brent above 40 $/ bbl while monomers have posted slight increases in August.We therefore confirm our June forecast that trend of monomers will remain positive till September.
On the other side exchange rate has had some strong movements. The Dollar have lost more than 5% to the Eur from 1.12 in early July to the 1.17 – 1.18 of these days. This will have some repercussion in Q4 if the trend will be confirmed. We can imagine that some trade flows will change from Asia & US to/ from Europe.
We can begin to analyze the first impacts of the pandemic on the petchem industry. Losses are important and this will lead to a strong restructuring of the market. We can already see first acquisitions/ dismissal of assets such as:
5$ Billon deal where BP have dismissed assets to Ineos BASF which want to dismiss several assets
Reliance/ Aramco done deal of 15 $ Billion has not been closed and discussions are underway to revise terms & conditions. It seems if it will be concluded it won’t be before 2021…
Just to cite a couple of significative numbers on results for Q2:
Five global oil majors collectively slashed production rates and the value of their assets by nearly 50 Billion $ in Q2 2020
Basf European Giant has posted lower sales of 12% year on year for Q2, with an EBIT of -77% year on year and a net income minus of 878 Million €
Middle East Giant has posted lower profit for Q2 with a fall of 73.4% year on year
Us Giant ExxonMobil has posted for their first time in history a consecutive quarterly with loss of 1.1 Billion $ in Q2
Chevron Corp posted its biggest los in three decades at 8.3 Billion $
Brazil Giant Brazil’s Braskem registered a net loss of BRL2.5 billion ($468.1 million) in Q2 2020
We believe in restructuring the market is the only way to make it viable on the long term. There are plenty of old & not environment friendly plants as well as global oversupply/ production of many commodities on the market. Last but not least all these old plant have been already amortized which makes it more simple to dismiss.
Highlight on PVC Market
Pvc market remains tight with increases of prices world wide in August.
Prices in Asia are continuing to grow and new shipments for September are witnessing further price increases. In U.S. Prices have hiked through the last two month with a healthy construction sector despite health emergency in several states.
In Europe demand for the pipe, flooring and gardening sector remains strong. Compounding sector is still lagging behind but have much improved since our last report and capacity utilization is back to normal. We can see that July 2020 is year on year around same level if not above 2019. Generally PVC prices are increasing between 10 to 15 €/t. Price fork between consumers and European regions can be important.
Regarding production we are still witnessing minor issues in some plants as well as other plants restarting production after some problems. This is anyhow helping the market to remain tight in Europe.
Finally our forecast is definitely a stable to firm trend in prices for PVC in September.
Highlight on Plasticizers Market
Plasticizer markets are right now tight in Asia with most producers running out of stock having already sold future shipments in September. Demand in China is very strong at the moment. Recent flooding had also a positive impact on demand for plasticizer.
In August we are witnessing general increases on all plasticizers in Europe. Fork prices remain wide depending on regions and producers. We believe market will get more firm in September due to much lower imports from Asia and some production issues in Europe. The path between firm and short market will depend on the real demand of the market.
We can divide our analysis in 2 segments:
European based productions (DINP & DIDP/DPHP) where we are seeing Evonik and Basf having some INA production troubles. It hasn’t been officially confirmed but we can see it clearly on the market. Moreover Perstorp is still facing C3 supply issue (due to Borealis) for DPHP production. We are witnessing general increases in August.
European and Extra European based productions (DOTP) where we can see still a confused market with wide price range. Fewer imports are noticed on the market and this trend will continue in the next months. Sibur continues to have production problems and this situation should last in Q4 meaning that nearly no material will arrive from Russia. Turkish players surprisingly remain much below market prices in July-early August, of more than 5% Vs. Normal market. Difficult to understand their strategy considering the low volumes exported to Europe. Demand is getting better with some sectors booming and others still recovering. Generally prices are moving up and we can expect definitely higher prices in September. If demand will be strong for next month the market could easily go very short due to the fewer imports.