Chemicals Update

 

Summer is traditionally a slow season for markets, including chemicals tankers and with the summer months already starting, one can expect the lull to start settling. A couple of developments are moving the market in that direction.

Turnarounds at chemical plants in Korea and China are still ongoing and will continue till mid-/2H June. The reduced production takes off pressure from the oversupplied Chinese market and there have been indications lately, showing price improvements in the domestic market for a variety of products such as acetic acid and base oils. This, in turn, makes it less attractive for foreign buyers to get products from China, while foreign producers may be more incentivized to export to China. And indeed, this is happening – Korean and Southeast Asian exports of aromatics to China have notched up, while Chinese exports to India are slowing down.

And while India has been a major outlet for surplus product from China earlier this year when prices were lower, it has built up significant inventories which would take time to deplete and in the meantime, it will be importing less.

Coincidentally, palm oil prices have come down recently on increased production and are now sufficiently low to spur export volumes to both India and China. In fact, some palm oil charterers are now having trouble finding ships for some of their volumes to China and the freights from Southeast Asia to the Far East have (finally) moved up.

More palm oil and chemicals exports from Southeast Asia to the Far East and lower exports from the Far East have chipped away at the owners’ advantage in the market and the sentiment has softened significantly. Similarly, more ships opening in West Coast India after discharging palm oil when demand from the Far East is slow, has changed the mood in the Middle East market from bullish to bearish.

It is not much better on both sides of the Atlantic. The US Gulf has seen a steady stream of aromatics and biofuels from Asia over the past couple of weeks, however after discharging there, ships have been sitting idle for weeks on end due to persistent weak demand from Europe, Asia, or South America. On the other hand, open deep-sea ships in Europe, where plants are having turnarounds or running at reduced rates, are also having trouble finding employment.

This slowdown would continue through the summer, but it will be more pronounced in the next few weeks till turnarounds are completed and receivers chew through their inventories. An uptick in the CPP market brought by the summer driving season would also stir excitement and firm up the freight rates.

By Plamen Aleksandrov, Market Researcher, Chemicals, SSY