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Industries:  General, Chemical 

2019 Category Forecast – Chemicals

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By: Beroe Inc

calender17 Jan 2019

forecast-category

By Vinu Prasanna, Customer Success Lead, and Chemicals Research Team 

  • The chemical complex will be driven by crude oil in 2019, with most derivatives mimicking the fall in oil markets in NYMEX and ICE.
  • A few key commodities will experience a bull run in 2019
    • TiO2
    • Acrylic (despite being a propylene derivative, solely due to logistical constraints in the European region)

What’s in store for chemicals in 2019? 

Crude oil will drive down prices of major chemicals used in key industries that drive the global economy:

Volatility witnessed in the global crude oil market during the tail end of 2018 will have a profound impact on the prices in the chemicals sector as a whole in 2019. Crude oil derivatives (commodities for which crude oil is the basic feedstock) that have contract prices linked to oil prices in New York and London will see immense fluctuations as the year begins. An average price fall of around 9% and 14% in Q4 2018 (Q-o-Q) for WTI and Brent grades of crude oil, respectively, has already started to trickle down to key monomers such as propylene/ethylene and benzene in key markets. Globally, these hydrocarbons are key nodes of the overall chemical commodities supply chain as they are building blocks of a large number of polymers and other complex or specialty chemicals that form the backbone of key industries that drive the global economy.

In this context, for businesses around the globe, momentum in the fall of crude oil prices will become the most important price run to watch out for as we enter the new year. The following is a snapshot of what has driven and will continue to drive the oil prices in 2019.

Bulls to support price -> OPEC production cuts, US sanctions on Iran; Bears to resist price increases -> Increasing crude oil output from the US

Overall Outlook for 2019 Huge falls >10 percent in crude oil prices are anticipated in both halves of 2019. Thus, from a cost angle, it appears positive for key industries in which the aforementioned oil derivative chemicals are used, such as automobile manufacturing, plastic packaging, home and personal care, manufacturing, medical devices, and the pharmaceutical drug manufacturing sector.

 

Commodity

 

 

2019 Y-o-Y price change

 

 

Factors that will influence prices (other than oil)

 

 

Pro-buyer Quarters in 2019

 

 

Crude oil

 

~22%

 

 

Increasing crude oil output from the US

 

 

-

 

Polymers - PP/PE/PET (Asia)

 

~10%

 

Lower propylene prices, new monomer and polymer plants in 2019, and depreciating currency

 

Q1 and end-Q3

 

Benzene (US)

~25%

 

Demand from downstream sectors; US-China trade war has resulted in weakened Chinese Yuan, which in turn has impacted prices

 

Q1 and Q3

 

Silicone (China)

 

~15%

 

Improved Chinese siloxane monomer operating rates, lack of implementation of environmental regulations in China

 

Q1 and Q4

 

Acrylic (US)

~8%

 

Increased tariffs as a result of trade wars, demand from construction sector to curb major price falls

 

Q1 and Q4

 

Titanium dioxide (EU)

~8%

 

Capacity rationalization in Europe and China is expected to have a significant impact on titanium dioxide supply. Manufacturer-driven price increase is likely during seasonal demand period - H1 2019.

 

Q1 and Q4

Monomer/Polymers – Bearish Outlook 

 

Commodity

 

 

2018

 

 

2019

 

 

Impact on Spend – 2019

 

 

 

 

 

 

 

 

PP and Propylene

 

 

  • Crude oil drives PP and feedstock higher in 2018 - Global propylene prices have increased by 1820% Y-o-Y in 2018 due to the recovery in crude oil prices. In Asia, prices increased by >10% Y-o-Y in 2018 due to the recovery in crude oil prices. As a result, the demand remained stagnant in H2.
  • Lower imports to decrease prices in the long term - Total PP capacity addition in H2 2018 across NE Asia will be 2.7 million MT/Y. This will result in lower imports and may decrease PP prices in the long term.

 

 

  • Change in crude oil prices to lower levels to curb all monomer and polymer prices - global propylene prices are estimated to decrease by 1015% Y-o-Y in 2019.
  • European propylene producers have long focused on the spring 2019 cracker maintenance season. So far, four propylene producers have announced planned maintenance in Q2 2019, which may support prices.
  • Result of the price fall - demand from the Asian market will increase on a Y-o-Y basis due to a dip in market prices.

 

 

 

 

 

 

pp-propylene

 

 

 

 

 

 

PE and Ethylene

 

 

  • Impact of US-China trade war - PE price in Asia is estimated to decrease by 6% on a Y-o-Y basis on the back of uncertainty due to trade war.
  • Falling crude oil prices in H2-2018 caused a price fall in H2 2018. This was also supported by an increase in supplies from the Middle East and Europe into Asia.

 

 

  • Crude oil to remain the major price driver in 2019 - PE prices are expected to drop further by 810% on a Y-o-Y basis. The price drop could be due to a drop in upstream values (crude and ethylene). At least through H1 2019, the crude oil market will drive prices. Hence, given the current bearish outlook for oil, both monomer ethylene and polymer PE are expected to remain at lower price levels (~810% than those of the previous year.

 

pp-propylene

 

 

 

 

 

 

Benzene Monomer

 

 

Relatively balanced supply-demand had kept benzene prices stable throughout H1 2018 after the 17% increase in Dec 2017 that was driven by demand from downstream segments.

Supply side factor that curbed any possible price increases in 2018 were the increased refinery rates, which resulted in increased supply of naphtha (key feedstock). This improved benzene supply in the US.

Benzene followed crude fall in Q4 - like other derivatives, benzene prices have mimicked the fall in crude oil prices.

 

 

Benzene anticipated to have the highest fall in 2019 among all oil derivatives - After fluctuating within a range of 25% through most of 2018, benzene prices are expected to witness a downward trend of about 2025% Y-o-Y in 2019 due to a steep decline in crude oil values.

WTI Crude oil prices are expected to decrease below 50 USD/bbl in 2019, which will impact benzene prices.

 

benzene_monomer


Silicones – Bearish Outlook

 

Commodity

 

 

2018

 

 

2019

 

 

Impact on Spend – 2019

 

 

 

 

 

 

Silicones

 

 

Silicone global supply crunch continued in H1 2018 in anticipation of new environmental regulations in China and sales control issued by the major supplier, Dow Dupont in Q2 2018. Dow restricted the sales of siloxane monomer and end-capping agent, which hampered the production of other silicone manufacturers. All these factors contributed to an upward price trend.

 

Chinese environmental regulations not in play - By mid H2 2018, supply slowly started to ease as Chinese environmental regulations did not come into play and feedstock siloxane monomer operating rates increased. Dow also released its sales control leading to a drop in prices.

 

 

Feedstock supply to resist price increases - After global price increases of 2530% in 201718, silicone prices are expected to witness a downward trend in 2019 in light of improved feedstock supply (especially China) and non-implementation of stringent environmental checks in China.

 

Probability of tight supply prevails, though on the lower side - However, the market could easily lapse into a tightened supply situation again as the siloxane monomer capacity expansions in the US and Europe are expected to come online only by 202021. Owing to the consolidated nature of the market, the major suppliers will continue to play a dominant role in supply and price movement.

 

silicones


Commodities with a bullish outlook for 2019

 

Commodity

 

 

2018

 

 

2019

 

 

Impact on Spend – 2019

 

 

 

 

 

 

 

Acrylic Acid

 

 

Supply and demand balanced through 2018 with no major impact on pricing - Abundant supply throughout 2018 driven by capacity additions in Belgium (Nippon) and in Russia (Gazprom) and stable demand from construction and automobile industries in Eastern and Western Europe, respectively.

 

Feedstock was the major price driver - A 20%, 10%, and 6% increase in prices in the US, Europe, and Asia, respectively, were primarily due to an increase in feedstock propylene prices by 22%, 18%, and 19%, respectively. Sales control by Dow Chemicals USA and BASF Germany had an impact on acrylic acid prices in the US and Europe.

 

 

Oversupply in Asia - With India’s first acrylic plant being set up by BPCL (1,60,000 MT/yr) and China also looking to increase capacity, the acrylic market is expected to remain oversupplied in the APAC region. Again, in 2019, demand is expected to be driven by adhesives and automobile industries.

 

Prices to increase slightly despite feedstock price fall - Acrylic acid prices are expected to increase by 7% in the US and Europe and by 4% in Asia. The market is plagued by logistical constraints that are expected to last until Spring 2019. In Europe, the River Rhine has historically low levels and alternative transport options are already stressed. The increase in tariffs from 10% to 25% imposed by the US on imports from China may result in a shift in trade patterns and impact prices this year.

 

acrylic_acid

 

 

 

 

 

 

 

 

 

TiO2

 

 

Excess supply in the market contracted rapidly during 2018 and there is only about 0.4 million MT of excess supply left in the global market.

Consolidation measures and environmental regulations increased across the globe in 2018, which was the major price driver in 2018. It is worth noting that since 2016, major producers have been very keen to alter the operating rates to improve pricing.

Around 50% of the Chinese capacity was impacted due to the environmental regulations and pollution crackdown measures introduced by the Chinese government in 2018.

 

 

Supply-Demand: No new supply will be coming online in 2019. Given the current supply, there is little room for any price drop in 2019. Supply is expected to reduce further due to the shutdown of the Venator Pori plant and environmental regulations in China.

Producer’s intentions: TiO2 prices began to increase steadily only from Q1 2017, before which the market was facing severe downward price pressure. Major spin offs like Chemours and Venator were created due to this price pressure, and it is now expected that they will try to consolidate the supply and restore profit levels due to the prevailing tight supply.

Indications from Feedstock suppliers: Feedstock suppliers like Iluka Resources have increased prices by as much as 1114% for H1 2019 contracts, and there has been market acceptance for such prices.

 

tio2

To read the forecast of other categories, please log on to Beroe LiVE: https://live.beroeinc.com. The report is available in the Special Reports section.

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