Petrochemical Correction Has Further to Run, Analysts Say

Analysts expect petrochemical prices to keep falling as supply disruptions that drove a sharp rally begin to reverse and demand from China disappoints.

The run-up that pushed ethylene and propylene to multi-year highs was fuelled by plant outages in Europe and Asia and sanctions that rerouted Russian feedstock flows. Red Sea shipping delays added to the squeeze, stretching lead times and lifting freight costs. Those dislocations are unwinding. Idled crackers in South Korea and Taiwan have restarted. European buyers who paid a premium for alternative supply now see shorter lead times, and spot freight rates have come down. A trader at a Singapore-based petrochemical broker said the ethylene spot market has loosened noticeably over the past four weeks.

Demand from China, the world's largest consumer of basic petrochemicals, has not lived up to expectations. Construction and automotive sectors, two big end-users of polyethylene and polypropylene, show sluggish offtake. Chinese independent refineries have cut run rates, reducing output of petrochemical byproducts. One analyst at a consultancy covering the region said the second-quarter recovery many had expected never materialised.