Spreads fall as petrochemical prices slip

Petrochemical product prices declined in May, after moving higher in the month of April. Ethylene, polyethylene, polypropylene prices slipped in the range of 4-9% m-o-m, even while feedstock prices (naphtha, propane) were mostly stable, indicating lower spreads and margins for petrochemical producers. We believe the fall in petrochemical prices, despite higher crude and stable feedstock prices could be attributed to weak demand. Manufacturing activity in China and Europe slowed further (key export destinations for Saudi companies), while US manufacturing accelerated. Benchmark crude prices continued to gain in May (Brent: +4.5% m-o-m; WTI:+5.2% m-o-m) as supply disruptions along with strong demand led to a more balanced market. The decrease in US oil rig count along with upward revision in demand forecast by EIA also supported oil prices.