Coronavirus and oil price war

05:13' PM - Wednesday, 25/03/2020

Asian stock markets and crude defied gravity on 25 March though on the ground the reality was that the regions’ second biggest economy - India - announced a complete lockdown for 21 days halting petrochemical trades in the country.

Asia naphtha prices - languishing at 18-year lows - spread, a measure of its refining margin, has fallen to negative territory amid bearish market conditions.

Overnight in the US truck and rail toluene and xylene prices declined this week, as did a variety of other aromatic and aliphatic solvents.

On this topic page we analyse the impact of coronavirus and the oil price collapse on chemical markets and bring together the latest news reported by ICIS.

Asian petchem shares, crude oil extend gains on US stimulus

By Nurluqman Suratman 2020/03/25 SINGAPORE (ICIS)--Asian petrochemical shares rallied while crude extended recent gains on Wednesday after US leaders agreed on a fresh $2tr stimulus package aimed at softening the blow of the coronavirus pandemic.

At 06:00 GMT, Asian stock markets were all in the green, with Japan's Nikkei 225 Index up by 7.00% and the Hang Seng Index in Hong Kong 2.64% higher.

US senate leaders reached a deal for the stimulus package - the largest in the country’s history - on Wednesday to combat the coronavirus-induced economic slowdown and to halt the heavy bleeding across the financial markets.

India petrochemical trades stalled; force majeure in place at ports amid lockdown

By Pearl Bantillo 2020/03/25 SINGAPORE (ICIS)--Petrochemical trades in India were disrupted with plants shutting down and ports declaring a force majeure amid a three-week nationwide lockdown meant to contain the spread of the novel coronavirus in the world’s second most populous country.

Buyers in the country have mostly cancelled import orders for some petrochemicals such as styrene monomer and styrene butadiene rubber (SBR).

India is a major importer of acetone, isopropanol (IPA), linear alkylbenzene (LAB), polyvinyl chloride (PVC), synthetic rubbers and ethanolamines.

Chems soar, Dow Jones up 11%, as US gets closer to stimulus deal
By Al Greenwood 2020/03/24 HOUSTON (ICIS)--US-listed shares of chemical companies rose as the Dow Jones Industrial Average increased by more than 11% as lawmakers came closer to passing a stimulus bill.

The deal, worth nearly $2trn, could be passed by Congress later in the day. The US is either in a recession or it will enter one as a result of the economic damage caused by the coronavirus (Covid-19).

INSIGHT: Chem M&A, projects may dry up as recession deepens

By Al Greenwood 2020/03/24 HOUSTON (ICIS)--The combined blows of low oil prices and the coronavirus (Covid-19) pandemic will cause chemical companies to rein in investments, causing declines in mergers and acquisitions (M&A) as well as new projects.

Even before the coronavirus, commodity chemical companies were contending with weaker demand as a result of destocking, said Arun Viswanathan, chemicals equity analyst at RBC Capital Markets.

Europe March benzene spot prices crash over 50% since Monday

By Helena Strathearn 24-Mar-20 16:44 LONDON (ICIS)--Europe benzene spot prices for March have halved in value in less than 24 hours. The cause is demand annihilation.

March was valued at $150-170/tonne on Tuesday afternoon, which is a $185-190/tonne decrease over values seen on Monday. April traded earlier at $150/tonne and at $180/tonne, and twice for H1 April at $175/tonne.

“Demand in Europe is bad,” a trader said, adding that consumers were selling. On Monday, benzene for April traded at $300/tonne. “Today... half price,” the trader said.

Eurozone economy faces 'deep downturn' as March PMI hits lowest level

By Morgan Condon 2020/03/24 LONDON (ICIS)--Business activity in the eurozone collapsed in March to the lowest level on record on the back of a sharp fall in the services sectors' output as the region battles the coronavirus pandemic, analysts at IHS Markit said on Tuesday.

The services and manufacturing composite purchasing managers’ index (PMI) fell from 51.6 points in February to 31.4 points in March, according to a flash reading.

A reading above 50.0 points marks economic expansion; a reading below shows contraction

INEOS to complete UK, Germany hand sanitizer plants in 10 days to address Europe shortage

By Anne-Sophie Briant-Vaghela 2020/03/24 LONDON (ICIS)--INEOS aims to complete two hand sanitizer plants in the UK and Germany in 10 days to produce 1m bottles per month each to address a critical shortage across Europe, the chemicals major said on Tuesday.

A spokesperson told ICIS that the company had been preparing the move for some time, making it confident it could achieve the 10-day timeframe.

INEOS plans to supply the hand sanitizers to hospitals, schools, places of work, pharmacies and supermarkets. Product would be free for hospitals.

India industries scale back operations on lockdown amid pandemic

By Priya Jestin 24-Mar-20 18:04 MUMBAI (ICIS)--Key manufacturing industries in India are either shutting down and scaling back operations as a full-country lockdown was implemented to contain the novel coronavirus pandemic in the south Asian nation.

There are fears that the global coronavirus crisis could endanger recovery in Asia’s second-biggest emerging economy.

Asia aromatics crater on decade-low naphtha market

By Clive Ong 24-Mar-20 15:54 SINGAPORE (ICIS)--Asia's benzene, toluene and xylenes markets were on a nose-dive as feedstock naphtha values tumbled to decade lows amid a hammering of markets by coronavirus pandemic and low crude.

Asia MX falls below $400/tonne mark on weak China demand; market bearish

By Keven Zhang 24-Mar-20 13:41 SINGAPORE (ICIS)--Asia’s isomer-grade mixed xylene prices have been hovering at their lowest in nearly 17 years, with the market outlook bearish on weak demand from China.

Spot prices of isomer-grade MX on a free-on-board (FOB) Korea basis fell below the $400/mark on 23 March to $388/tonne; while the cost-and-freight (CFR) NE (northeast) Asia price stood at $422/tonne, ICIS data showed.

Asia petchem shares, oil prices rebound on US Fed stimulus plan

By Nurluqman Suratman 24-Mar-20 12:05 SINGAPORE (ICIS)--Asian petrochemical shares and crude oil prices rebounded sharply on Tuesday after the US Federal Reserve announced unprecedented measures to support the economy.

Gains were capped by economic growth concerns as the number of countries implementing restrictions on movement continued to grow, including the UK, India and Australia.

USTMA calls for economic relief for US tyremakers amid coronavirus

By Tracy Dang 23-Mar-20 18:00 HOUSTON (ICIS)--A US tyre group is urging lawmakers to enact policies that would provide economic relief to tyre manufacturers and their workers amid production disruptions due to the coronavirus.

US ethanol futures hit another record low

By Alex Snodgrass 2020/03/23 HOUSTON (ICIS)--US fuel ethanol futures fell again on Monday to record lows, surpassing the previous records.

The US industrial ethanol market continues to tighten amid increased demand for hand sanitizers.

Some fuel ethanol producers are now switching to produce ethanol for sanitizers as the Alcohol and Tobacco Tax and Trade Bureau (TTB) created exemptions allowing certain alcohol fuel permit holders to sell industrial ethanol for use in the production of hand sanitizers.

US chem shares fall as Senate debates aid package

By Al Greenwood 2020/03/23 HOUSTON (ICIS)--Shares of US-listed chemical companies continued to fall on Monday as the nation's upper legislative chamber continued to negotiate a $2trn aid bill intended to offset the economic disruptions caused by the coronavirus (Covid-19).

DCP Midstream was the latest midstream company to cut capital expenditures.Other companies, such as Ingevity and Braskem, said that their plants are running normally.

For the oil industry, it is contending with a decline in demand caused by the coronavirus and a price war between OPEC and Russia.

For the oil industry, it is contending with a decline in demand caused by the coronavirus and a price war between OPEC and Russia.

Cooper, Michelin suspend some North American tyre production on coronavirus

By Tracy Dang 2020/03/23 HOUSTON (ICIS)--Cooper Tires and Michelin are the latest tyre makers to suspend North America operations because of impacts from the coronavirus.

Cooper said it will temporarily shut down US and Mexico plants, beginning Monday, on a rolling schedule over the coming week and lasting for two-to-three weeks.

Michelin said on Friday that it would begin a temporary, phased shutdown of some of its US and Canada plants, lasting for at least two weeks.

PODCAST: Hit to chemicals demand worse than 2009, industry in uncharted territory

By Will Beacham 2020/03/23 BARCELONA (ICIS)--Coronavirus means the chemicals industry could face a severe demand shock larger than in the 2008-2009 crisis when operating rates fell to 46%, according to two consultants.

A massive loss of demand around the world for key end use sectors such as automotive, construction, and electronics, leaves chemical companies facing tough choices to maintain their businesses, said John Richardson, ICIS Senior Consultant, Asia, and Paul Hodges, chairman at International eChem.

Government and central bank actions to boost demand and safeguard economies have so far failed to reassure investors, leading to further falls in stock markets and oil prices on Monday.

Europe benzene spot closed down by 33% on Friday after tumultuous week on the markets

By Helena Strathearn 23-Mar-20 13:10 LONDON (ICIS)--The European benzene spot market posted substantial losses last week on a sharp drop in oil prices, with demand floundering because of the profound impact on the industry caused by the coronavirus pandemic.

March prices closed 33% lower on Friday versus the week before, putting values in line with Q1 2009 levels. Decreases of up to $175/tonne brought the closing range to $340-360/tonne for March, and falls of up to $195/tonne brought April to $330-350/tonne. Four weeks ago, closing values were $660-680/tonne for March.

• Prices fall 21% week on week
• 36% drop in prices since end of February
• Bids see sharpest ever daily fall midweek

Total, Shell slash spending plans, suspend share buy-backs

By Tom Brown 23-Mar-20 13:49 Total and Shell on Monday announced plans to cut spending and reduce costs in the face of dramatic falls in the price of oil and an expected global recession this year due to the spread of coronavirus.

Shell is to cut underlying annual costs by $3bn-4bn over the next 12 months compared to 2019 levels and cut capital expenditure to $20bn or below for this year compared with plans of $25bn, increasing pre-tax free cashflow by $8bn-9bn.

Total is to reducing operating capital expenditure levels by $3bn this year, a cut of over 20% on planned levels, and reducing 2020 outflows to under $15bn, and increasing its planned cost savings for 2020 from $300m to $800m.

India boosting ethanol output for sanitisers on coronavirus pandemic

Author: Priya Jestin 2020/03/23 MUMBAI (ICIS)--India has asked its state governments to ensure continuous availability of ethanol/ ethyl alcohol/ extra neutral alcohol to manufacturers of hand sanitizers to meet the surge in demand due to the coronavirus pandemic.

"Necessary permissions on account of licensing and storage of ethyl alcohol/extra neutral alcohol (ENA)/ethanol may be accorded by the state government agencies to sanitizer companies up to their installed capacity without any quota restriction on supply," the Ministry of Consumer Affairs has stated in a circular.

State governments have also been asked to give permission to distilleries on a priority basis to produce sanitiser in bulk, which can then be packed and bottled.

Asia IPA prices hit 67-week high; market sentiment bullish

By Yuanlin Koh 2020/03/23 SINGAPORE (ICIS)--Asia’s isopropanol (IPA) prices hit a fresh high in 67 weeks on 20 March 2020, one of the few chemicals surging in demand and price amid the ongoing coronavirus pandemic and crude falls.

Sentiment remained bullish as IPA supply tightened in the current open Asia-to-Europe arbitrage.

As the number of coronavirus cases surge in Europe, demand continued to outstrip supply, causing traders and buyers to turn to Asia to procure IPA, some to provide more sources of IPA, while others who were not in the IPA business also entered the market, hoping to earn a quick buck.

Asian suppliers, citing lucrative margins, sold the majority of their cargoes there.

Asia naphtha sinks to 18-year low on extended crude oil falls

By Melanie Wee 2020/03/23 SINGAPORE (ICIS)--Asia naphtha prices fell by over $40/tonne at the week’s outset, hammered by further declines in crude oil futures as the escalating coronavirus pandemic raised fears of global demand evaporating.

Open-specification naphtha prices for first-half May delivery averaged at $212.50/tonne at early hours session on Monday, down 17% from the previous Asia close on 21 March.

The sharp decline sent prices to a fresh 18-year low, a level not seen since February 2002, ICIS data shows.

Europe PE PP demand driven by medical, food packaging needs

By Linda Naylor 20-Mar-20 14:15 LONDON (ICIS)--Polyethylene (PE) and polypropylene (PP) demand is patchy, with food packaging and medical demand at the forefront of current strong volumes, and automotive lagging behind.

INSIGHT: Prevailing economic concerns to weigh on polyolefins market fundamentals

By Angie Li 20-Mar-20 14:02 SINGAPORE (ICIS)--Pessimism prevails in the China polyolefins market amid weakening supply-demand fundamentals, after circuit breakers were triggered four times on US stocks in March and Brent crude tumbled to an 18-year trough at below $25/bbl.

SE Asia ethylene languishes at more than 11-year lows; Thai demand may provide support

By Yeow Pei Lin 20-Mar-20 13:37 SINGAPORE (ICIS)--Spot ethylene prices in southeast Asia continued their downward trajectory over concerns that falling crude futures and stricter travel and social restrictions imposed by regional governments to slow the spread of the coronavirus could impact downstream demand.

Malaysia plastics plants yet to receive shutdown exemption amid lockdown

By Pearl Bantillo 20-Mar-20 13:32 SINGAPORE (ICIS)--Most plastics manufacturers and downstream converters in Malaysia have yet to receive a government approval to continue plant operations during the two-week lockdown of the country amid the coronavirus pandemic, an industry executive said late on Friday.

Europe R-PP decision making delayed by coronavirus

By Mark Victory 20-Mar-20 12:24 LONDON (ICIS)--Europe March recycled polypropylene (R-PP) values have rolled over as players defer pricing decisions to April when the impact of the coronavirus pandemic and government-led measures to contain it become clearer.

Asia IPA market spurred by Europe’s demand surge

By Yuanlin Koh 20-Mar-20 08:25 SINGAPORE (ICIS)--With Europe’s spike in isopropanol (IPA) demand amid the coronavirus pandemic, Asia’s IPA market turned increasingly bullish as supply tightened.

SE Asia LLDPE hovers near record lows on crude falls, virus controls

By Izham Ahmad 20-Mar-20 04:05 SINGAPORE (ICIS)--Price discussions in the southeast Asian linear low density polyethylene (LLDPE) import market are teetering on the brink of record lows due to recent decline in crude oil prices and as virus control measures in some regions hit end-user demand for PE resins.

ICIS Webinar: US Q2 GDP plunge may reach 8%, crushing chem demand

By Al Greenwood 19-Mar-20 22:08 HOUSTON (ICIS)--The US economy could contract by 8% in the second quarter as a result of the disruptions caused by the coronavirus (Covid-19) and the decline in oil prices, the chief economist of the American Chemistry Council (ACC) said in an ICIS webinar on Thursday.

INSIGHT: The end-use markets for chemicals hardest hit by coronavirus

By Rhian O'Connor 19-Mar-20 18:45 LONDON (ICIS)--New evidence from China shows the impact of the coronavirus lockdown on different end use markets for chemicals and plastics, with some winners and some losers emerging.

Europe SBR March contracts drop double-digits, market faces steep drop in tyre demand as virus pandemic escalates

By Melissa Hurley 19-Mar-20 17:33 LONDON (ICIS)--European styrene butadiene rubber (SBR) market players are braced for a sharp demand drop as containment efforts amid the coronavirus (Covid-19) pandemic escalate.

US Fed’s new corporate debt programme opens relief valve for chemicals

The US Federal Reserve’s unleashing of unlimited QE (quantitative easing) in response to the coronavirus is expanding to corporate bonds, providing more liquidity for certain US chemical companies if they need to borrow directly from the government or issue more debt, writes Joseph Chang.

However, the types of corporate debt the Fed will support is key. In its 23 March statement, the Fed limits its lending and planned purchases under two new facilities to investment grade companies.

Investment grade credit ratings are Baa3 or higher by Moody’s Investors Service or BBB- or higher by Standard & Poor’s. This won’t directly help those with weaker credit profiles.

For investment grade chemical companies, the Fed move to buy corporate bonds offers a prime opportunity to raise new debt at low cost and push maturities much further out, if needed.

This would alleviate immediate solvency concerns - concerns that are at the forefront of investors’ minds and even regarding investment grade companies amid chaotic financial markets.

TWO NEW FED MECHANISMS

The Fed is employing two mechanisms to support corporate debt, but again, for investment grade firms only.

The first is the Primary Market Corporate Credit Facility (PMCCF). This facility will provide bridge loans to companies for four years. Borrowers can defer both interest and principal payments for six months, a feature that is extendable at the Fed’s discretion.

The second is the Secondary Market Corporate Credit Facility (SMCCF) which will directly buy investment grade corporate bonds on the open market. This will support bond prices, allowing high quality companies to issue debt at lower rates.

The second mechanism is critically important since corporate bond prices - even those rated investment grade - have been crushed along with stock prices, sending yields higher at a time when low borrowing rates are desperately needed.

“While fiscal authorities have been moving very slowly unfortunately, the Fed has been firing up new measures at an unprecedented pace,” said Yelena Shulyatyeva, senior US economist at Bloomberg LP on a 23 March National Association for Business Economics (NABE) conference call.

“By deploying its crisis-era programmes and facilities, and expanding them much further beyond what was implemented during the great recession, the central bank is essentially working to curtail the further spread of financial market turmoil,” she added.

INVESTMENT GRADE FIRMS

For the North American chemical sector, companies with investment grade credit ratings that would be able to take advantage of the Fed’s new corporate debt facilities include Dow, LyondellBasell, Westlake Chemical, Celanese, Eastman Chemical, Methanex, Chevron Phillips Chemical, PPG and RPM International.

“In chemicals, most investment grade companies are in reasonably good condition. So long as they don’t make any policy moves that hurt creditors, they’re probably going to be OK,” said John Rogers, senior vice president covering North American chemicals at Moody’s.

“While chemicals are not directly impacted by the coronavirus like airlines, restaurants, hotels and gaming, we view this as a recession, and there will be collateral damage to chemicals as such,” he added.

For publicly traded US chemical companies, most have already back-end loaded their debt maturities, facing little pressure in the near term with sufficient cash on hand and projected cash flow to meet those obligations.

NOTE: Total debt may not reflect other short-term borrowings, maturities can reflect short-term lease obligations
* Dow on 25 Feb sold €2.25bn in Euro notes due 2027, 2032 and 2040, paying down $1.5bn in debt due 2022 and other debt
** Huntsman on 5 Jan sold its intermediates business to Indorama for around $2bn
*** Principal payments to be made on debt, incl short-term borrowings
Source: US Securities and Exchange Commission, compiled by ICIS

For example, investment-grade rated Dow should be nearing around $3bn in cash on hand ($2.4bn at year-end 2019) on hand and faces no major debt maturities until 2023 ($2.5bn). It was fortunate to have sold €2.25bn in euro notes on 25 February that mature in 2027, 2032 and 2040. Proceeds were used to pay down $1.25bn in debt coming due in 2022, as well as $750m in term loans.

Westlake Chemical, also in the investment grade category, faces only a $250m debt maturity in 2022 while cash at the end of 2019 was $728m. The rest of its long-term debt - $3.25bn - comes due in 2026 and beyond. About $1.7bn of this debt is pushed out as far as 2046 and 2047.

Trinseo, which is in the speculative grade (non-investment grade) category, has no debt maturities until 2024 when $684m comes due. It ended 2019 with $456m in cash on hand.

While investment grade US chemical companies would be able to tap the Fed facility for direct loans or issue new debt, the need is not pressing at this point, said Rogers from Moody’s.

“Companies may be lining up lines of credit versus new debt to push out maturities - there’s not a lot of need to do that. Debt maturities are in pretty good shape for investment grade chemical companies,” he added.

However, in the past 10-15 years, North American chemical credit ratings have slipped from the high A-rating end as the spreads within investment grade have compressed, allowing companies to make acquisitions and buy back stock with little penalty, noted Benjamin Nelson, vice president and senior credit officer at Moody’s.

“Now that spreads have widened, there will be a difference in cost going to market,” he said.

RISK OF DEFAULT

Among Moody’s coverage of North American chemical companies, just three are at risk of default or debt restructuring if upcoming maturities are not addressed. These are in the C-rated group - thermoset resins producer Hexion, and agricultural products companies Pinnacle Operating Corp and Verdesian Life Sciences, said analysts in a 20 March report.

In Moody’s B-rated category, refinancing risk in 2020 is “manageable”, with 10 of the 44 companies in the category having a total of around $2.2bn in debt maturing in the next two years.

“This represents only 7% of total outstanding debt of B-rated chemical companies and most is comprised of revolving credit facilities, which the companies should be able to extend,” said the analysts.

“Still, weak credit metrics or deteriorating macroeconomic conditions pose refinancing risk for some companies,” they noted.

STIMULUS PACKAGE NEEDED

While the Fed is taking unprecedented measures to support financial markets, including corporate debt, fiscal stimulus is the key to any recovery. As of the early evening of 23 March, Congress has yet to agree on a package.

“The Fed’s latest actions, if matched by a swift and massive fiscal stimulus… will have a significant impact on the real economy. It will not save the second quarter of this year, but it will help the economy recover when the crisis is over,” said Shulyatyeva.

“However the size and the timing of the fiscal package will determine whether the economy starts to recover in the second half or whether the contraction extends further and deeper,” she added.

But forget about a V-shaped recovery for the US economy, the economist said.

“It’s not going to be a V-shaped recovery and not even a U-shaped one. We call it a hockey stick or L-shaped, and this will only be possible if the fiscal package will get through,” said Shulyatyeva.

“This is definitely not a temporary situation - it will stay with us for some time, and frankly every day the situation becomes much worse in the absence of a fiscal package,” she added. - ICIS -

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