COVID-19 - News digest as of 18.06.2020

1. China is stockpiling crude oil and exporting fuel, not boosting consumption

MOSCOW (MRC) -- The rebound in China’s crude oil refinery processing and record imports of the fuel in May would seem to be bullish indicators that the world’s second-largest economy is recovering strongly after the hit from the coronavirus lockdowns, said Hydrocarbonprocessing. For sure, the numbers are robust. But there are some other factors within the data that give rise to caution against becoming too optimistic about the real strength of the crude oil sector in China. The two main factors worth looking at are the amount of crude flowing into commercial and strategic storage tanks, and the amount of crude that is ultimately being exported back out of China in the form of refined fuels.


Russian Urals oil exports to fall in July

MOSCOW (MRC) -- Russia may further cut overseas supplies of its Urals oil next month due to rising demand from domestic refineries as coronavirus-related restrictions ease, reported Reuters with reference to sources familiar with the data and oil producers’ plans.

The wrapping up of the refineries’ seasonal maintenance is also expected to increase the appetite for the crude from processing plants.

Russia agreed to reduce its oil production in May through to July by almost 2.5 million barrels per day of as a part of a deal with other oil producers, a group widely known as OPEC+, to combat the economic fallout caused by the coronavirus.

Moscow lifted its coronavirus lockdown last week.

“Demand for gasoline is ramping up fast, we have to increase runs or there will be nothing to supply to our petrol stations,” a source with a major Russian oil company told Reuters.

Exports of Russia’s flagship Urals oil bend in June have been set to decline to the lowest in months, to just 4.4 million tonnes from the Baltic ports and 1.2 million tonnes from the Black Sea’s Novorossiisk.

Traders familiar with Russian oil companies’ export plans expect oil loadings from the Baltic Sea ports to decline further next month to roughly 3 million tonnes.

Low supplies of Urals oil has driven the premium for the grade to dated Brent to historic highs in early June - plus USD1.95 and USD1.80 per barrel due to a lack of alternatives in Europe.

“Urals alternatives are either absent or very expensive,” a trader in northwest Europe market said.

Russia’s primary offline refining capacity is expected to decrease to 1.6 million tonnes from 3 million tonnes in June, according to Energy Ministry data and Reuters calculations.

It means oil companies will have roughly 1.4 million tonnes less oil for export, traders said. An increase in gasoline demand in June has been above expectations so far, which may lead to even more supplies going to domestic refineries, they added.

As MRC wrote previously, global oil consumption cut by up to a third in Q1 2020. What happens next in the oil market depends on how quickly and completely the global economy emerges from lockdown, and whether the recessionary hit lingers through the rest of this year and into 2021.

Earlier this year, BP said the deadly coronavirus outbreak could cut global oil demand growth by 40 per cent in 2020, putting pressure on Opec producers and Russia to curb supplies to keep prices in check.

We remind that, in September 2019, six world's major petrochemical companies in Flanders, Belgium, North Rhine-Westphalia, Germany, and the Netherlands (Trilateral Region) announced the creation of a consortium to jointly investigate how naphtha or gas steam crackers could be operated using renewable electricity instead of fossil fuels. The Cracker of the Future consortium, which includes BASF, Borealis, BP, LyondellBasell, SABIC and Total, aims to produce base chemicals while also significantly reducing carbon emissions. The companies agreed to invest in R&D and knowledge sharing as they assess the possibility of transitioning their base chemical production to renewable electricity.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 721,290 tonnes in the first four month of 2020, up by 4% year on year. Low density polyethylene (LDPE) and linear low density polyethylene (LLDPE) shipments grew partially because of the increased capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market totalled 347,440 tonnes in January-April 2020 (calculated by the formula production minus export plus import). Supply exclusively of PP random copolymer increased.

PolyOne forecasts 20% second-quarter sales decline

MOSCOW (MRC) -- PolyOne says it expects second-quarter sales to be down 20% year-on-year (YOY), on big declines in automotive production and consumer discretionary spending due to the coronavirus disease 2019 (COVID-19) pandemic, said Chemweek.

Sales bottomed out in May, chairman and CEO Robert Patterson told investors during a conference call today. However, sales still declined on a YOY basis in June, despite a small sequential improvement.

The May sales trough stands in contrast to many chemical makers, who saw sales bottom out in April. Sales related to the automotive sector are expected to fall by 40% YOY in the second-quarter, although such sales represent only 10% of PolyOne’s total, according to Patterson. “The balance is mainly due to a decline in demand for consumer discretionary items,” particularly athletic apparel—for which PolyOne produces inks—and off-road vehicles, Patterson says. The industrial, construction, and oil and gas markets also experienced lower demand this quarter.

Packaging and healthcare related end markets were a bright spot for PolyOne. Sales into packaging applications were up 5% YOY, while sales into healthcare applications were up 8%.

Regionally, second-quarter sales are expected to be down by 27% YOY in Europe and by about 20% in the Americas. In Asia, sales are expected to rise 10% YOY, due mainly to reopening in China. While sales are improving in Europe and North America, Latin America has been a laggard, as the pandemic has grown worse in the region over the course of the quarter. “For PolyOne overall, we view May as the trough, but we’re not sure we can say that about Latin America,” Patterson says.

“North America and Europe are likely starting to rebound, but demand trends in Latin America and India have yet to stabilize,” notes Laurence Alexander, an analyst with Jefferies (New York, New York).

Second-quarter sales in PolyOne’s distribution segment are expected to fall by 23% YOY, with sales 18% in engineered materials and 16.5% in the colors, additives and inks segment. The larger decline in distribution sales in mainly due to that segment’s greater exposure to the automotive sector and consumer discretionary spending.

Adjusted earnings for the quarter are expected to total 26 cents/share, including the impact of new share issuance and new interest expenses, according to Patterson. This compares with adjusted earnings of 48 cents/share in the second-quarter of 2019.

As MRC informed earlier, in December 2019, Clariant (Muttenz, Switzerland) agreed to sell its entire Masterbatches business to PolyOne Corp. (Avon Lake, Ohio). The transaction values the Masterbatches business at USD1,560 million, representing about 12.2 times the last twelve months reported EBITDA (ending September 2019) on a cash and debt free basis.

Meanwhile, the USD1.45-billion acquisition of Clariant’s masterbatches and color additives business is on track to close on 1 July. The deal will expand PolyOne’s colors, additives, and inks segment.

As MRC informed earlier, Russia's output of products from polymers grew in April 2020 by 11.2% year on year due to quarantine restrictions. However, this figure increased by 3.4% year on year in the first four months of 2020. According to the Russian Federal State Statistics Service, April production of unreinforced and non-combined films decreased to 107,000 tonnes from 110,400 tonnes a month earlier. Output of films products grew in the first four months of 2020 by 12.5% year on year to 402,800 tonnes.

Pilipinas Shell hydrogen project resumes as coronavirus curbs eased

MOSCOW (MRC) -- Pilipinas Shell Petroleum Corp said it has resumed construction of an integrated hydrogen manufacturing facility at its Tabangao refinery in the Philippines, after being hampered by the coronavirus lockdown, said Hydrocarbonprocessing.

Restrictions on movement have been eased in Philippine provinces and cities with low coronavirus cases to help restore business activity in the Southeast Asian economy.

The local unit of Shell had planned to complete the project this year in partnership with Air Liquide Philippines Inc.

"We intend to complete the project promptly,” a company spokesperson told Reuters. “However, we would need to consider, adopt and adapt to new labour safety restrictions, and assess the impact these would have on our completion timelines."

The facility, which will be the first of its kind in the country, will enable the 110,000-barrel-per-day Tabangao refinery in Batangas City, south of the capital Manila, to process more crude oil varieties into quality fuels.

Operations at the Tabangao refinery have been suspended indefinitely due to poor domestic fuel demand and refining margins caused by the lockdown.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 721,290 tonnes in the first four month of 2020, up by 4% year on year. Low density polyethylene (LDPE) and linear low density polyethylene (LLDPE) shipments grew partially because of the increased capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market totalled 347,440 tonnes in January-April 2020 (calculated by the formula production minus export plus import). Supply exclusively of PP random copolymer increased.According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 557,060 tonnes in the first three month of 2020, up by 7% year on year. High density polyethylene (HDPE) and linear low density polyethylene (LLDPE) shipments rose because of the increased capacity utilisation at ZapSibNeftekhim. Demand for LDPE subsided.

Royal Dutch Shell plc is an Anglo-Dutch multinational oil and gas company headquartered in The Hague, Netherlands and with its registered office in London, United Kingdom. It is the biggest company in the world in terms of revenue and one of the six oil and gas "supermajors". Shell is vertically integrated and is active in every area of the oil and gas industry, including exploration and production, refining, distribution and marketing, petrochemicals, power generation and trading.


Celanese raises July VAM prices in China

Celanese raises July VAM prices in China

MOSCOW (MRC) -- Celanese Corporation, a global specialty materials company, has increased July list and off-list selling prices for Vinyl Acetate Monomer (VAM) sold in China, as per the company's press release.

The price increase is effective for orders shipped on or after 1 July, 2020, or as contracts otherwise allow, and is incremental to any previously announced increases.

Thus, July VAM prices will rise for the Chinese region by RM700/mt.

As MRC reported earlier, the company last raised its VAM prices for China on 22 May, 2020, by RMB350/mt.

According to MRC's DataScope report, April EVA imports to Russia dropped by 5,85% year on year to 3,050 tonnes from 3,250 tonnes a year earlier, and overall imports of this grade of ethylene copolymer into the Russian Federation increased in January-April 2020 by 1,55% year on year to 12,540 tonnes (12,350 tonnes a year earlier).

Celanese Corporation is a global technology leader in the production of differentiated chemistry solutions and specialty materials used in most major industries and consumer applications. Based in Dallas, Celanese employs approximately 7,700 employees worldwide and had 2019 net sales of USD6.3 billion.