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01 October 2023

Petrochemicals demand up as Chinese buyers return

By Shashank Shekhar

The demand for petrochemicals has stabilised and picked up in Asia as Chinese buyers returned to the markets after New Year celebrations, according to a new report by HSBC.

The report comes close on the heels of recent media reports that the Chinese have begun buying into commodities, especially copper, which hit a three-month high yesterday.

Though HSBC did not forecast demand levels in Asia for 2009, the report indicated that business confidence in the petrochemical sector in Asia was on a path of recovery after having plunged to its bottom in January.

The author of the report, Hassan Ahmed, had in November last year expressed hope that demand will resume in February 2009 after inventories of petrochemical producers deplete.

Globally, chemical exports are expected to slump to $689 billion (Dh2.52 trillion) from $699bn in 2008. The lion's share of this fall is expected to come from North America and Europe, HSBC data showed.

HSBC data suggested that the petrochemical plants in Asia are being supported by low feedstock costs. Cost per tonne of ethylene, naptha and other petroleum distillates have all dropped due to falling oil prices, data showed.

The analysis may partly heal the tough times that GCC petrochemicals manufacturers had recently endured. GCC-based petrochemical manufacturers, who export a majority of their produce to China and India had been waiting for demand to pick up in China.

HSBC said its report that there was a "demand weakness" in Asia earlier this year and added things have improved recently.

"The price arbitrage between the US and Northeast Asia narrowed this month, which could indicate that prices are stabilising in Asia as some demand is restored post the Chinese new year holiday," it said.

The bank's US-based analysts listed 71 petrochemical companies across the world that have been temporarily shut down or are have been closed for maintenance. The list does not mention any firms from the GCC.

HSBC estimates a free cash flow yield of 10 per cent and 28 per cent respectively for GCC petrochemical majors Industries Qatar and Sabic in 2009.

"Of the Asian petrochemical companies under HSBC's coverage, Middle Eastern companies such Industries Qatar, Sabic and Safco have shown upbeat performance over a period of six to 12 months," it said.