Jul Chemical Market Expected to Keep Firm
Introduction: China’s chemical market continued to inch up in June 2024. International crude oil prices maintained an uptrend after a small drop, providing cost support to chemicals. Meanwhile, the supply-demand imbalance was eased somewhat, with end-user demand recovering to different extents. For July, the chemical market is predicted to keep firm, but the upside potential for prices may be limited.
In June, among the 50 major chemical products that SCI monitors, 26 products saw rises in their monthly average prices, taking up 52.00% of the total, while 24 products saw price drops, accounting for 48.00% of the total. As for products with price rises, the top three were butadiene (+14.84%), PBR (+11.78%) and SBR (+11.34%). As for products with price declines, the top three were acrylonitrile (-7.85%), methanol (-7.49%) and MTBE (-5.82%).
The major influencing factors for the chemical market in June are as follows: 1. International crude oil prices kept rising after drops, and the monthly average price of WTI crude oil declined by 0.34%. The small drop in oil prices exerted limited influences on the chemical market, but the uptrend provided periodical support to chemicals. 2. The overall inventory of chemicals presented a downtrend, and the supply-demand imbalance was eased somewhat. 3. End-user demand recovered to different extents in different fields. The demand in the automobile and electronics industries rose steadily, greatly supporting related feedstock markets, but the real estate and chemical fiber industries recovered slowly. Marginal demand improvement promoted cost transmission, but the short-term influence was limited, and production enterprises generally showed low positivity.
In June, the theoretical gross profits of chemicals changed limitedly. Among 48 major chemical products, the number of products with negative profits took up 62.5% of the total, flat from last month, and the average gross profit rallied slightly. Downstream products lacked upward momentum for prices due to sluggish demand, and most enterprises were on the verge of profit losses. Upstream products were profitable moderately, but limited downstream orders curbed the cost transmission.
Forecast: The chemical market is predicted to stay firm in July, but the upside potential for prices may be limited. In July, crude oil prices are expected to fluctuate upwards, providing stronger cost support for chemicals. Meanwhile, market demand improvement may continue. In the automobile and home appliances industries, the sales may mount up under the support of trade-in and other policies. However, the demand improvement in the real estate industry, the largest demand field of chemicals, may be relatively slow. In addition, most industries will enter the demand slack season in July.
The global economy remains under mild recovery.
In May 2024, the global manufacturing PMI registered 49.8%, slightly below 50% for two consecutive months. Among them, the manufacturing industry in Asia ran smoothly. The recovery of the manufacturing industry in Europe improved somewhat, while that in the Americas and Africa weakened. From January to May, the global manufacturing PMI averaged 49.7%, better than that in the same period last year. U.S. PCE inflation decelerated across the board in May, and the core inflation measure referenced by the Fed hit its lowest record within more than three years, providing strong support for expectations of the Fed’s interest rate cut in September this year.
China’s domestic economy runs steadily on the whole.
In May, the macroeconomic growth slowed down. On the production side, PMI and industrial production fell; on the investment side, infrastructure and real estate investment slid and credit demand weakened; on the consumption side, consumer prices remained at a low level. The recovery in the manufacturing industry continued to slow in June, with the PMI recording 49.5%, unchanged from the previous reading. Production increased while stabilizing, growth of new drivers accelerated, the vitality of micro entities improved, the pressure from raw material costs fell for a short period, and the overall economic performance was stable. However, the problem of insufficient market demand needs to be paid further attention.
It is estimated that international crude oil prices may fluctuate upward in July, but the price increment may be limited. The gasoline consumption in the U.S. is likely to be high in summer, and the crude oil stock will probably continue to go down, with rising crude oil processing volume. It is expected that the gasoline consumption will probably lift the international crude oil prices. Moreover, Saudi Arabia will probably continue to cut crude oil production in Q3, 2024, so the overall international crude oil supply may be tight. Besides, it is expected that the USD may weaken in the future, supporting international crude oil prices.
In June, the operating rate of the chemical industry edged up but remained at a low level. According to SCI’s monitoring of 46 major chemicals, the monthly average operating rate was 67.52% in June, up 3 percentage points M-O-M and up 1.61 percentage points Y-O-Y. The operating rates of upstream products were generally higher than those of downstream products, indicating that market supply was slightly stronger, which lessened the support for market prices.
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