Jul Organic Chemical Market Fluctuated Upward

The organic chemical market fluctuated upward overall in China in July.  

Market review:

Aromatics: The aromatics market picked up, boosted by buoyant crude oil prices in the early month and healthy supply-demand fundamentals. The benzene market grew, in line with the rise of USD 75/bbl in crude oil prices. The toluene market increased, following the uptrend of crude oil and higher xylene prices. The xylene market went up, resulting from buoyant crude oil and refined oil prices as well as expectations of newly built PX projects. 

Olefins: The olefins market edged up amid fine supply-demand fundamentals.

The propylene market prices were stable-to-rising in July. At the beginning of July, several refineries underwent maintenance together and some downstream producers resumed operation. The fundamentals of propylene were healthy with its inventories lower gradually. In the middle of July, the propylene supply from North China, Northeast China and Shandong decreased. Besides, the downstream demand for propylene increased a lot (such as Jilin Shenhua Group and LUXI Group). The propylene market was short-supplied at that time. However, several PP powder producers started to run their units at low operating rates later due to the decreasing profit. Some PO units also underwent maintenance, so the demand for propylene decreased and the propylene market prices inched down. Approaching the end of July, the profit of PP powder producers increased and the general operating rates of downstream producers increased. Then both the PP futures and spot prices surged, supporting the market. The propylene prices followed and reached a new high in the year.

Alcohol: The methanol market fluctuated upward, due to the combination of unit turnarounds and sluggish demand.

Reasons:

Macro conditions: After the international crude oil prices increase to over $70/bbl, more and more market participants adopt a bullish attitude to the international crude oil market. Once the conflict between the U.S. and Iraq breaks out, the international crude oil prices will rise rapidly in a short time. Moreover, the U.S.-European trade situation eased to some extent, and there many people in North America driving cars to go to a trip in summer. Therefore, the demand for crude oil will rise somewhat. Besides, market participants were uncertain about the OPEC oil-producing countries’ production. Therefore, the international crude oil prices will rise to high levels but may fall from the high levels in the long term.

Downstream: The general-purpose plastic market was stalemated affected by wide fluctuations in the cost side. Mainstream POY150D/48F market prices rose by RMB 700/mt to RMB 9,800-10,000/mt, driven by the depreciation of RMB, strong export and buoyant PTA and MEG prices.

Market forecast:

The organic market should be range-bound and lack upward momentum in August. The methanol market should fluctuate widely due to replenishments ahead of the Mid-autumn Day holiday and sluggish demand. The propylene market may face great pressure in August amid sluggish supply-demand fundamentals. The average prices in Shandong are predicted to be RMB 8,100-8,300/mt, and the market prices are supposed to hover around RMB 8,000-8,800/mt. The benzene market should keep rising. The toluene and xylene markets should fluctuate marginally.