Commodities News

Trade War Crossfire, Supply Glut Slam Asian Petrochemical Profits

Profits from making petrochemicals in Asia have dropped to their weakest in months as the cruel trade war between Beijing, and Washington smothers Chinese demand for chemical compounds and plastics as waves of latest production start to come on track.

The global output capacity for polyethylene, a significant ingredient for plastics utilized in everything from piping to toys, is predicted to exceed demand by 3 million tonnes by the end of 2020, in comparison with overcapacity of 545,000 tonnes in 2019, data from commodity consultancy Wood Mackenzie confirmed.

That comes as new production is about to crank up in China, South Korea, and Malaysia, though the US and the Middle East will account for over half of the new volumes.

Though market analysts say polyethylene profit margins are already at their lowest in around seven years, expanding supplies could drive them even lower – putting high-cost producers under critical stress.

The spread between costs for polyethylene and feedstock naphtha gives an approximation of how much revenue petrochemical producers can make.

Per data from the Korea Petrochemical Industry Association, the regular spread between high-density polyethylene and naphtha feedstock Q2 costs was $421.34 a ton – the lowest quarterly average since 2012.

In the meantime, a plastic known as linear low-density polyethylene, utilized in a host of products together with food and non-food packaging, is equally weak.

Danielle Hollman

By Danielle Hollman

Danielle is a Market expert with vast experience in commodities. She also has expertise in marketing and international business communication in her career portfolio. She has worked with several entrepreneurs, financial services firms, and media houses. Danielle joined FBI Market News in 2018. Now, she is leading the Commodity column.

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