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Petrochemical plants and logistics operators are continuing to manage the challenges of operating under difficult circumstances. Supply chains are vulnerable to interruptions and delays, but the active and contingency measures put in place, as well as a drop in overall demand for product and logistics, have limited disruption. The lack of visibility over underlying demand is the other major challenge for producers. Cracker operating rates have come down only slightly compared with pre-coronavirus levels and are now generally steady at relatively solid levels. Ethylene demand has held up well considering, but the impact is not even and dependent on the exposure of producers to different end-user sectors and geographies. Maintenance is limiting the impact on refinery operating rates, but many are still moving towards minimum run rates because of the collapse in demand for transportations fuels. Fuel delivery data from one major supplier in the second week of Spain’s lockdown — 23-29 March — implied that the decline in kerosine demand had accelerated to 85pc on the year, from 56pc a week earlier. The fall in gasoline volumes accelerated to 83pc on the year from 56pc the previous week, while deliveries of road diesel were down by 61pc on the year, higher than the 38pc reported a week before. The impact in Italy is at least as bad and one refinery has been forced to close temporarily purely because of the loss of demand. The loss of fuel demand may not yet be as steep across northwest Europe, but it is very high.

MARKETS

Feedstocks

There had been a growing disconnect between prompt physical and forward oil prices. Almost all grades were trading below $20/bl in the physical market last week — with some below $10bl at times. It is therefore no surprise to see renewed discussions about production cuts of up to 15mn b/d, the kind of exceptional level that would be required to put a floor under prices in the short term. The talk helped to underpin gains in futures trading with Ice Brent for June climbing to $34.11/bl on 3 April, from a recent low of $24.74/bl on 1 April, before slipping back slightly to $33.05/bl on 6 April. European naphtha recovered to €150.85/t at the close on 3 April, from a low of €109.97/t on 1 April. The close on 6 April of €140.55/t was still below the March average of €223/t. Price premiums to naphtha for large cargo propane and butane coasters widened over the past seven days despite narrowing toward the end of the week as naphtha responded more quickly to the uptick in oil.

Chemicals

Monthly contract prices for major petrochemicals have settled substantially lower for April, as expected because of the sharp decline in feedstocks over the past month. Declines in prompt pricing eased as feedstocks steadied and open arbitrages allowed the export of some products out of Europe.

• The ethylene market remains stable, with producers focused on maintaining the fragile balance. Ethylene demand is down but reasonable for most derivatives, depending on the geography and end markets. PE and EO demand is solid, but anyone exposed to the car industry or construction in some regions is harder hit. PVC demand has dropped, particularly in France and Spain, although until now the German construction sector has continued to function relatively normally.

• The propylene market is steady with a delicate balance between softer demand from some end markets — particularly from the automotive sector — and supply constraints from reduced refinery, and to a limited extent cracker, operating rates and some maintenance extensions. Imports from the US have continued to be fixed for April arrivals in Europe.

• Butadiene has been severely exposed to the slowdown in European automotive and tire production. Exports to Asia-Pacific have helped to steady the market, but it is uncertain how much they can absorb. Crude C4 spot prices fell to co-crack values of 0.9-1 times naphtha, having traded at a 1.13-1.15 factor for most of March.

• The April contract price (CP) settlement for benzene fell by $463/t and €424/t, marking its largest ever monthly CP drop. Spot prices crept higher and moved slightly above CP, underpinned by an open arbitrage to the US. Discussions abound for export cargoes, carrying 5,000-10,000, with at least 20,000t likely to leave Europe for the US by the middle or second half of April. The benzene-naphtha spread has improved to $70-80/t so far in April after touching a low of $22/t in March. It averaged $180/t in March and $237/t in the first quarter.

• Styrene firmed amid broadly illiquid trading, drawing its strength from feedstock benzene and Chinese markets. Oversupply persisted but no one is in a rush to sell, with the glut starting to ease as the arbitrage from the US has been closed since March and amid continuing production cutbacks that started in January. The arbitrage to China opened intermittently on paper but interest to export was scarce. The barge styrene CP for April dropped by over €300/t from March as feedstock benzene and ethylene contract values tumbled.

• The April toluene contract price was agreed at $271/t, down by $299-304/t from March, the largest ever monthly fall. Continued shutdowns in the automotive sector are weighing on downstream TDI demand, while export routes remain closed. But selective disproportionation economics remain supported by relatively firm PET demand for plastic bottles and food packaging. There are some concerns that increased PET demand will come at the expense of the traditionally firm summer season.

• Weekly spot orthoxylene prices have fallen to $450-500/t, their lowest since November 2008 during the financial crisis. Demand has been impacted by a slowdown in construction with some downstream PA production already cutting back rates.

• Methanol spot prices continued their downtrend last week, reaching a new low trading at €146/t fob Rotterdam. The last time prices were at such levels were during February 2016 and June 2009.Downstream of methanol, the formaldehyde resins market has begun to see capacity shut down, with the construction industry in the Mediterranean particularly slow at present.

• After the very large decreases in ethylene, propylene and styrene, polymer prices are set to fall. But producers are aiming to widen the margin of their products over feedstock, by lowering their prices by less than the monomer movement. Negotiations for the majority of contract customers are in the very early stage – or have not begun – and the scale of the price moves is likely to mean that it takes some time for a market price to become established.

• Chlor-alkali supply chains remain largely intact, but weaker chlorine offtake is driving cuts in operating rates across Europe. Northwest European producers are individually pushing for €60-80/dmt price rises for caustic soda in the second quarter, with most leaning towards €80/dmt increases as a target. Larger increases of up to €100/dmt are being implemented in southern Europe for April, but importers have managed to secure volumes from the Middle East to offset much of the shortfall in imports from northwest Europe and Egypt. Production cuts are also being implemented in central and eastern Europe, albeit to a lesser extent than in other markets.