[SINGAPORE] Petrochemical players in South-east Asia are bracing themselves for increasing competition, as the tariff-led breakdown of trade between the US and China creates a flood of petchem products into the region.
Brian Leonal, head of Asia petrochemical pricing at Argus, said: “There will be some challenges to the petrochemical industry in South-east Asia. The US and China will try to export products that they typically trade with each other to this region.
“There will certainly be meaningful reorganisation of trade flows coming from the trade tensions between China and the US.”
The immediate impact of this would be a slump in petrochemical prices in the region. This is expected to strain South-east Asian manufacturers and refineries.
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“There will likely be greater and ample supplies in the region, triggering the potential risk of price dumping,” said S&P Global Ratings analyst Shawn Park.
“Even with the revised US-China tariffs, various sectors will be affected, causing a slowdown in global consumption of merchandise goods,” he added. “Slower consumption implies a global slowdown in petrochemical demand, leading to oversupply in key petrochemical products, such as polypropylene (PP).”
PP is used in a wide range of industrial and commercial applications, including food packaging, textile products, automotive parts, medical equipment and construction materials.
Though most key Asean countries such as Indonesia, Malaysia and Vietnam are net importers of petrochemicals, market watchers say the profit margins of petrochemical manufacturers in the region may still be affected by lower prices.
Park also noted that the demand visibility for final manufactured goods will likely remain uncertain. “It’s still difficult for us to see a sustained demand pick-up in the sector,” he said.
Impact on the bottom line
Due to wavering demand and the uncertainty, analysts are slashing their recommendations and target prices on regional petrochemical companies.
For instance, research house CGS International (CGSI) has downgraded Malaysian petrochemical company Lotte Chemical Titan (LCT) to “reduce” from “hold”.
The downgrade comes despite the polyolefins producer having narrowed its core net losses in the first quarter of 2025 by 28 per cent.
CGSI analyst Raymond Yap noted that prices of polyethylene (PE) – the most commonly produced plastic – are expected to soften due to US PE exports having been rerouted to China in April 2025.
He also noted that US-China container shipping bookings have plummeted by half since the tariffs took effect, which could result in a decline in manufacturing output in China, contributing to the oversupply.
Yap said that the negative trade outlook and excess supply could put pressure on petrochemical prices.
Thai producers are also among those who may be hit.
DBS analyst Duladeth Bik sees a negative outlook for Thai integrated petrochemical and refining business PTT Global Chemical (PTTGC), caused by waning demand and heightened supply.
He anticipates a prolonged chemical trough cycle for the next two years as a result of the continued influx of new capacity. He estimated that PE capacity growth will peak at 6 to 7 per cent in China in 2027.
Before the recent tariff pause, the supply of ethane, which is used to make PE, was diverted to Asean markets.
Though the supply may be directed back to petrochemical manufacturers in China, they still provide an alternative at a cost advantage for Asean PE plants, relative to ethane derived from regional naphtha crackers.
Though naphtha crackers are more costly to operate, they are more prevalent in South-east Asia than ethane crackers.
Regional refineries providing feedstock may be affected as well.
Bik noted that refinery performance deteriorated both year on year and quarter on quarter for PTTGC.
Market gross refinery margins stood at US$3.40 a barrel, down 59 per cent from the same quarter in the previous year.
Though refinery margins started recovering in May, DBS estimates that lingering effects from the trade tensions may dampen potential gains.
CGSI analyst Amornrat Cheevavivhawalkul also forecasts that PTTGC’s earnings before interest, taxes, depreciation and amortisation (Ebitda) will remain weak in the next two years. She attributed this to declining demand from trade tensions, leading to oversupply of olefins.
Overall, CGSI rates the petrochemical industry as “underweight” due to trade tensions and the “chronic oversupply issue”.
Cheevavivhawalkul noted that despite delays in China-based propane dehydrogenation (PDH) projects, propylene supply is estimated to reach 5.5 to 6.8 million tonnes a year from 2025 to 2027.
Although the estimate is down from previous estimates of 6.4 to 9 million tonnes a year, this still outsizes demand growth, which is estimated to be between 4 million and 5 million tonnes a year.
Ongoing trade friction could also lead to a “demand destruction” of Chinese manufactured goods that require propylene, she noted.
These goods, including refrigerators, washing machines and air conditioners, command 40 to 50 per cent, 35 to 40 per cent and 25 to 35 per cent of market share in the US, respectively.
Decreasing demand in manufactured goods could potentially lead to regional prices of petrochemical supplies to tumble.
She also noted that even if the US eased up on its reciprocal tariffs on certain countries, the brewing trade tensions should keep Asia’s growth in demand for plastics low over the next few years.
On the other hand, Argus’ Leonal noted that Chinese manufacturers of finished products might move their operations to South-east Asia – to Vietnam, for example – as they have done in the past.
Though South-east Asian markets are subject to increasing competition, prolonged trade tensions might end up benefiting them through heightened economic activity.
