19.9 C
New York
Wednesday, August 17, 2022

China’s yuan devaluation has limited impact on petrochemicals complex

China’s surprise devaluation of the yuan on Tuesday, when the country’s central bank set the official value of the renminbi about 2% weaker against the dollar, has not hit the petrochemicals complex in a significant way, industry participants said, with fundamentals and other factors likely to temper the impact of China’s recent macroeconomic move.

Borouge CEO Wim Roels said the policy-driven devaluation of the yuan will have a net neutral impact on the company’s polymer business.

“As an importer into China, devaluation makes [our] polymer imports more expensive,” he said. “On the positive side, it gives [China-based] end-users a bit more room to export.”

Polymer industry participants agreed, saying the depreciation will help China-based plastics end users export internationally, which may translate into a moderate demand boost for polypropylene.

However, industry participants see this policy as a sign of ongoing weakness, as the government takes increasingly strong measures to shore up a flagging economy.

“The Chinese government was forced to devalue their currency due to deteriorating economic conditions, it was not voluntary,” said a major polymer trader.

Imported CFR FE Asia PP cargoes were already uncompetitive compared with Chinese domestic PP prices before depreciation.

Imported PP is likely to be even less competitive after the devaluation, limiting changes to any trade flows, sources said.

The devaluation of the yuan did have an immediate impact on domestic PTA and MEG prices and on carbide PVC prices, but the impact was much more subdued for other petrochemical products, industry sources said.

PTA prices closed at Yuan 4,570-4,580/mt Tuesday, immediately after the devaluation, up from Yuan 4,510/mt Thursday, the last published price ahead of the long holiday weekend, while MEG prices increased to Yuan 5,960-5,980/mt compared with Yuan 5,850/mt on Thursday.

For dollar-denominated cargoes, weak demand and low bids against ample supply drove the spot PTA price down to $620/mt from Thursday’s $625/mt CFR China, while in the case of MEG, traders said a floor was put around $780/mt CFR China, up from Thursday’s $770-775/mt CFR China.

Market participants say the weaker yuan will only be able to shore up domestic prices temporarily, as crude is still the dominant driver and is likely to drop further in the near term.

The devaluation will most definitely have an impact on Chinese carbide PVC exports, participants said, especially for India which typically imports around half of its PVC from South Korea, Taiwan, China and Iran.

The devaluation reduced China’s latest carbide PVC offers (Xingjiang Tianye) by about 2.67% ($20/mt) overnight, making Chinese carbide PVC more cost competitive to import for India compared with South Korean/Taiwanese-origin cargoes.

India has not imported Chinese carbide PVC since May due to better netback in the domestic China market, but sources say this latest devaluation, coupled with weak domestic demand in China, will result in a wave of Chinese carbide PVC coming out of China into India, Malaysia and even Africa, where ethylene-based PVC from Taiwan/S Korea and Japan had typically enjoyed the lion’s share of the import market.

The toluene spot market in China has not reacted yet to the devaluation of the Chinese yuan as most market participants expect the policies to take effect at a later date.

Demand remains weak amid a supply glut. Exports are likely if the Chinese yuan continues to weaken against the US dollar.

However, given the slump in the global toluene market, it could also be difficult to export, market participants said. A major acetic acid producer in China noted that FOB China offer prices Wednesday were a tad lower week on week, by about $5/mt at $360/mt.

However, he said the decline was caused by weak demand fundamentals rather than China’s monetary move, which was unlikely to prop up exports as demand for the commodity remains weak.

“We are not offering any AA at the moment as prices are unattractive,” the producer said.

“We will wait and see how [the devaluation] pans out in the long term,” the producer said.

The long-term impact could also be limited if demand remained weak or if other countries undertake similar moves and devalue their currencies to stay competitive, he said.

Vietnam’s central bank already acted on Wednesday, allowing the dong to be traded in a band 2% above or below the central bank’s reference rate, compared with 1% earlier.

In the Asian isomer-grade mixed xylenes market, prices were pegged down $5/mt day on day at $697/mt FOB Korea Wednesday morning.

Asian styrene monomer was pegged down $21/mt at $1,104.50/mt FOB Korea.

Market sources agreed that China’s devaluation signals the government’s concern about slowing growth and has exacerbated the negative sentiment in overall commodity markets.

However, they were cautious about its long-term impact as other factors such as weak demand also weighed on styrene monomer prices.

“China depreciated its currency mainly to boost the economy,” a market source said. “However, they may not achieve the goal in the short term due to global bearishness amid falling crude prices.”

“Prices could firm up a little (in the long run on the back higher exports), but I think it mostly will track the global trend,” the source said.

Related Articles

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Stay Connected

11,289FansLike
12,893FollowersFollow
748FollowersFollow
- Advertisement -

Latest Articles

Popular Articles