May Chemical Market to Fluctuate Under Downward Pressure
Preface: China’s chemical market fluctuated upwards in April 2024. Crude oil prices fluctuated upwards in April, providing cost support to chemicals. Market demand recovered gradually, but the overall performance was weak. The inventory of most chemicals remained high, curbing the price rise extent. In May, the chemical market is predicted to be largely stable with slight declines. On the one hand, crude oil prices may first drop and then rise. On the other hand, the support from the overall supply-demand fundamentals may be relatively weak.
In April, among the 41 major chemicals that SCI monitors, 34 products saw rises in their monthly average prices, taking up 82.93% of the total, while 7 products saw price drops, accounting for 17.17% of the total. As for products with price rises, the top three were MMA (+14%), acrylic acid (+8%) and MTBE (+8%). As for products with price declines, the top three were 2-EH (-14%), MEG (-2%) and epoxy resin (-2%).
The major influencing factors for the chemical market in April are as follows: 1. International crude oil prices fluctuated upwards amid frequent geopolitical disturbances and supply reductions. The WTI monthly average price rose by 5.10%, providing cost support to the prices of chemicals. 2. Market demand recovered gradually, but the overall performance was still relatively weak. The inventory of most chemicals was still high, curbing the price rise extent.
In April, the proportion of chemicals with negative profits remained large, affecting enterprises’ production positivity to some extent. International crude oil prices went up, pushing up the cost of most chemicals. However, the supply and demand fundamentals were relatively weak, and the cost transmission was slow. Most chemicals saw limited price rises in spite of larger feedstock price growth, so their profits were cut accordingly.
May forecast: The chemical market may be largely stable with slightly declines. In May, crude oil prices may first drop and then rise, and the downside potential is expected to be limited. The demand for chemicals is predicted to keep recovering amid the bullish macro-economy, but the supply of major chemical raw materials is stable, and the inventory of most chemicals is at a relatively high level. Thus, the support from the overall supply-demand fundamentals is relatively weak.
International crude oil prices remained on a rise, and the expectation of Fed’s interest rate cut in June weakened. International crude oil prices showed an uptrend on the whole in Q1, with Brent prices further rebounding to $84/bbl. Affected by geopolitical factors, the possibility of crude oil prices fluctuating upwards has increased. The US real GDP in Q1, 2024 grew by 1.6% on an annualized quarterly basis, far less than the 2.5% expected by the market, a sharp slowdown from 3.4% in Q4, 2023, and the lowest growth rate in nearly two years. At present, the US dollar index fluctuates at a high level above 105, and the influence of US dollar changes on commodity prices is amplified. If the European Central Bank cuts interest rates ahead of the Federal Reserve in June, the US dollar will further strengthen and suppress the rise of commodity prices.
China’s economy has shown signs of improvement, and the domestic chemical market operation environment has slowly recovered. The demand subindex of the manufacturing PMI performed better in March, which was also the main driver of the gradual rise of commodity prices in April. The macro data in the first quarter continued to show a trend of structural recovery, and the data of industrial enterprises in March was released, with the profit growth rate turning negative, while the inventory growth rate rising. In terms of structure, the cumulative growth rate of profits in high-tech manufacturing industry further accelerated, but the cumulative growth rate of profits in equipment manufacturing and consumer goods industries declined. Although the inventory growth rate rebounded, some industries may have entered the active replenishment cycle. However, considering the fluctuation of the profits at industrial enterprises, the overall active replenishment has not yet arrived, and the ability and willingness of enterprises to replenish the inventory are still relatively limited.
It is estimated that international crude oil prices may first fluctuate downwards and then rise in May, and the price decline may be limited. The interest rate is expected to be stable in May, while strong USD and demand uncertainties may weigh on the oil market. However, impacts of geopolitics on the oil market may weaken. As for fundamentals, the OPEC+ production cut policy may give limited support to the oil market, but the crude oil demand in the U.S. may improve in the second half of the month, and stable destocking may bolster the oil prices to fluctuate upwards.
The operating rate of the chemical industry edged down in April. According to SCI’s monitoring of 50 major chemicals, the monthly average operating rate was 63.07% in April, down 5.17 percentage points M-O-M and down 1.38 percentage points Y-O-Y. The operating rate decline of downstream products was larger, indicating that market demand tended to weaken.
May 2024 Major Chemical Industrial Chain Prediction
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