The chemical market slightly fluctuated in the first half of 2018 and fell largely after a sharp surge in the second half of the year. As crude oil continued to increase, and the PX-PTA industry chain surged, the chemical market started to go up since July and reached the yearly high of 5 802 on September 4. Then the crude oil prices began to decline. Facing the bubbles in prices of some produces, the chemical market fell rapidly accordingly. Chemsino’s China Chemical Prices Index (CCPI) closed at 4 643 at the end of the year, down by 11.8%, the lowest level of the year. Among them, 38 products went up, accounting for 23.8% of the total; 121 products went down, accounting for 75.6%. See Table 1 and Table 2 for details.

    Table 1  Hot products’ market prices

Table 2  Key products’ market prices

Increasing products

   Hexamethylenediamine

   The hexamethylenediamine market was on the upward track during the whole year of 2018. By the end of the year, the price of hexamethylenediamine closed at RMB80 000/t, with an increase of 189.9%. See Chart 1 for more details. The market was rapidly rising in the first half of 2018 on the heels of the supply tightness caused by a series of incidents. At the beginning of February, BASF’s plant was shut down due to a malfunction. On February 16, Solvay announced that its adiponitrile plant at Chalampé, France suffered force majeure. INVISTA's adiponitrile unit in US also experienced supply problems. The global market supply was greatly tightened, resulting in a sharp increase in the prices.

Chart 1  Hexamethylene price trend

   Dimethyl carbonate

   In 2018, the dimethyl carbonate market showed an upward trend. After the first seven months’ consolidation, the prices began to pick up at the beginning of August. By the end of the year, the market closed at RMB 8 800/t, an increase of 35.4%. Although its raw material propylene oxide did not perform well, maintenance of plants, including Taifeng Feiyang, Yankuang and Taizhou Linggu, tightened the market. In addition, dimethyl carbonate is one of the main components of lithium battery electrolytes. With the development of the lithium battery industry, market demand for dimethyl carbonate has gradually increased, prompting prices to continue to rise.

   Industrial naphthalene

   The industrial naphthalene market fluctuated during the year and rose to RMB5 000/t at the end of 2018, an increase of 33.3%. Its raw material coal tar, affected by environmental protection policies, was suffering from the decreasing utilization, which gradually pushed up prices, and gained a growth of 17.6% during the year. The high cost gave the industrial naphthalene prices, but also limited the supply. The downstream phthalic anhydride market was bullish, with a year-on-year increase of 4.2%. The industry chain developed smoothly, which boosted the naphthalene market.

Decreasing products

   MDI & TDI

   The MDI market experienced a lot of ups and downs in 2018 and closed at RMB11 500/t at the year end, a decrease of 57.9%. After two years’ increase, the market was at highs in 2018 and the supply was been sufficient: in August, Huntsman Shanghai launched a new plant with capacity of 240 kt/a, and the imports also increased compared with 2017. However, due to environmental protection policies, the demand from derivatives was weak, resulting in an oversupply of MDI. Another raw material of polyurethane, TDI, also showed a downward trend. At the end of the year, it closed at RMB16 300/t, a decrease of 59.3%. See Chart 2 for details. The price fall was especially sharp in March-April and September-October. Shipments from South Korea, Saudi Arabia and India concentrated in September, and the supply thus increased significantly, leading to a bearish market, coupled with the sluggish demand from polyurethane market.

       Chart 2  TDI price trend

   Formic acid

   In 2018, the formic acid market showed a step-down trend, and closed at RMB3 000/t at the end of the year, a decrease of 57.4%. The decline was very rapid in May, mainly because Shandong Acid Technology's new formic acid plant had been put into operation in April and the products began to flow into the market in May. The increase in supply led to an unfavorable forecast, and several formic acid producers lowered their quotes. During the whole year, the formic acid market had been in an oversupply situation and prices fell to their lowest level since the beginning of 2017.

   Lithium carbonate

   Except for a small rebound at the beginning of 2018, the lithium carbonate market was basically on a continuous downward track in the whole year, closing at RMB85 300/t, a decrease of 47.8%. Qinghai Salt Lake, the major producing area of lithium resources, started to sell off in March due to high inventory, dragging down the price of lithium carbonate. In addition, battery giant OptimumNano announced in June that they would stop production for half a year due to the debt crisis, and market demand hence declined. New capacities of lithium carbonate from enterprises such as Yahua will soon be launched, which will further increase the pressure on the market, and the prospect in 2019 is not optimistic.

Other key products

   Crude oil and aromatics

   After the crude oil prices decreased in 2018, the WTI and Brent fell by 25.0% and 21.9% respectively, and the decline began to be obvious in October. Take WTI for example. It plunged from the highest level of US$76.41/barrel in October 2 to the lowest of US$ 44.61/ barrel at the year end. The aromatics market was also going down. Except for PX, which showed an uptrend in the year, benzene, styrene, toluene, solvent-grade xylene and heterogeneous xylenes fell by 36.5%, 24.4%, 18.6%, 13.5% and 13.4% respectively. The bearish crude oil was the major reason of these declines. In addition, the ample supply of benzene and arrivals of imports had also dragged down the market.

   Methanol 

   The methanol market fluctuated sharply in 2018 and closed at RMB2 290/t at the end of the year, a drop of 31.3%. The huge declines happened in January-February and October-November. From January to February, the supply of imports increased continuously. At the end of February, the inventory of methanol in the coastal areas increased to about 720 kt. Meanwhile, the traditional downstream industries’ operating rates were low, and there were no signs of recovery in the short-term. At the beginning of October, crude oil futures began to fall, and the methanol market went down again.

   PTA & ethylene glycol

   The polyester’s raw materials enjoyed an outstanding growth in 2018. PTA closed at RMB6 100/t at the end of the year, an increase of 8.0%. Its amazing increase in July-August was unforgettable. From July to August, the RMB exchange rate continued to depreciate. As nearly 60% of China's PX demand relies on imports, the depreciation of the RMB has become the main reason for the rise in market prices. With the support of the cost, the PTA market became strong and the futures went even higher. In addition to the higher raw materials and import costs, PTA inventory reduction and large demand from polyester industry in the third quarter also boosted PTA market's upward trend. As for ethylene glycol, the market was consolidating to a lower level in 2018. Due to the high prices of PTA, the polyester producers’ operating rates started to decline, resulting in a difficulty in ethylene glycol sales and increases in its port inventory. The fundamentals were weak, and the prices showed a downward trend. It is worth noting that on December 10, 2018, the ethylene glycol futures contract was officially listed and traded at the Dalian Commodity Exchange, which will play a guiding role in spot prices.

   Epichlorohydrin & C3 industry chain

   The prices of epichlorohydrin fell sharply in 2018, with a fluctuation of 98.9% and a drop of 43.8%. In the second half of 2017, the utilization of the glycerin-routed plants was greatly reduced, the market supply became severely short, and the prices rose quickly and sharply, reaching a five-year high of RMB17 500/t. When it came to 2018, 40 kt/a of Zhonghai Fine Chemicals and 75 kt/a of Shandong Binhua were put into operation successively, and the glycerin-routed lines started to pick up their operating rates. The market supply hence increased. At the same time, demand for downstream epoxy resin industry continued to weaken under the influence of environmental protection inspections. The overall fundamentals of the market turned weak. 

   In addition to the volatile epichlorohydrin, other products in C3 industry chain have also seen ups and downs in 2018. Their raw material propylene closed down by 4.8% in the year. During the period from July to mid-October, the maintenance of Dongming Petrochemical and Yongxin Chemical, coupled with the reduction of imports, led to a tight market, and the price rose steadily, reaching the highest level of RMB10 150/t on October 11. In the second half of October, crude oil futures started to decrease, and the support from propylene cost diminished. At the meantime, the high inventory of the refineries and the weak demand from downstream manufacturers forced the prices down. Among the downstream products of propylene, acetone, propylene oxide, acrylonitrile and PP closed down 45.5%, 19.7%, 11.4% and 0.5% respectively, and acrylic acid closed up 8.9%. The decline in the acetone market was very obvious: in May, CNOOC-Shell's 350 kt/a phenol-acetone plant was put into operation, and the supply for East China market became ample. The market prices started to decrease accordingly. The acrylonitrile market plunged after a rise. With the re-start of the lines which had been put offline for maintenance, producers’ inventory started to increase since late September. Meanwhile, the demand from acrylic fibers and ABS declined. The acrylonitrile market showed a cliff-like plunge.

Pressures still exist in 2019

   OPEC has decided to cut the crude oil production by 1.2 million barrels per day from 2019, and this will help alleviate the problem of oversupply. At the same time, the production of US shale oil and Russian crude oil are expected to increase further. In terms of demand, the International Monetary Fund adjusted down its global economic growth forecast by 0.2%, and such adjustment has not happened since July 2016, which might suppress the crude oil demand. There is still pressure on the international crude oil market in 2019, but there is not much downward space.

   For the domestic market, the Ministry of Environment said that a new round of inspections will be fully launched in 2019. The impact on the chemical market will continue to develop, and the operation of some high-polluting and high-energy consuming industries will be restricted or even stopped.

   Hengli Petrochemical's atmospheric and vacuum distillation plant was put into operation as scheduled at the end of the 2018. And the integrated downstream units will be launched successively in 2019. The initial phase of Zhejiang Petrochemical’s Refining and Chemical Integration Project is scheduled to be put into operation in mid-2019. After the commencement of projects of Shenghong Refining and CNPC-PDVSA Guangdong Petrochemical in 2018, the refining and chemical integration projects will be further developed in the next few years, and the supply of petrochemical products will be greatly improved.

   On the demand side, it is anticipated that the economic growth rate in 2019 may fall below 6.5%, and the demand for chemical market will be weakened. On the whole, the pressure on the chemical market will be high in 2019, but as the market is already at a relatively low level, there is no big possibility of a huge decline.