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What to watch in 2022 in polymer markets?

by Manolya Tufan -
  • 03/01/2022 (02:41)
As the evolving impact of the pandemic changes key aspects of trading and the supply/demand imbalance left its mark on global petrochemical markets during 2021, let us have a look at some of the underlying fundamentals that would have a say on markets in 2022.

How things are likely to play out in 2022’s economic environment?

The global economic recovery is projected to prevail through 2022, although tightening monetary policies are put in place to tame inflation. Still, economists point to a slew of headwinds including new variants, inflationary pressures, Fed’s potential rate hikes, China’s property downturn and geopolitical concerns that may slow down the pace of the growth.

Asian countries are trying to keep Omicron at bay, while the raging variant has already led to a lockdown in China and reintroduced measures elsewhere to suppress the prevalence of the virus.That is to say, the likelihood of further disruptions in the supply chain and labour shortage would be high in case of more lockdowns caused by the new variants.

The threat of inflation and its implication for rates will be under close watch as well. Fed’s potential rate hikes, three possibly next year, to fight inflation and the government’s plans to cut back on pandemic-era stimulus not only pose challenges for the US economy in the longer run but also put emerging economies at risk of slowing. This is because higher rates boost the USD and trigger capital outflows and currency fluctuations in the emerging markets.

China’s post-COVID recovery has been hurt by virus-led lockdowns, energy shortages and Evergrande’s debt problems in 2021. The real estate slump and zero-case strategy could cast a pall on the growth and rattle global markets.

Logistics snarls to prevail

Supply chain disruptions have been unarguably immense throughout 2021 due to lingering shipping backlogs. Although shipping congestion slightly eased towards the end of the year, shipping costs are still elevated. Drewry’s global benchmark hit an all-time high in September 2021 after posting a hike of more than 500% from the H1 2020. Freight rates currently indicate a 11% drop from their September peak, but they are still standing 170% above the same period of last year.

Port operations and land transportation could be easily disrupted in case of lockdowns and other restrictive measures. According to participants, moving cargoes takes longer than usual amid the lingering impact of the Covid-19.

According to Bloomberg, before the pandemic, it would take about 45 days from the time cargo was picked up at a factory in Asia for it to depart the US West Coast ports by rail or truck for a warehouse; today, it takes 105 days.

An immediate relief in logistics operations is not deemed likely if countries reintroduce restrictions. The logistics industry will need to expand its limits due to the fact that long-term infrastructure overhauls take time, let alone the continued growth in consumer spending.

The long-term solution to the logjams is to invest in upgrades at the ports, including rejiggering designs to allow for bigger vessels, adding terminal and yard space and more cranes and building up inland facilities and access points, an industry expert reported to Bloomberg. “The infrastructure bill will help, but the timeline is 10 years, not 10 months,” he said.

Oil prices on shaky ground

Views over the demand outlook diverge in the thick of the new Omicron variant. The International Energy Agency (IEA) and the U.S. Energy Information Administration (EIA) both cut their oil demand forecasts through March due to rising cases and new restrictions on international travel.

Global inflation and supply bottlenecks, ongoing trade issues and their impact on industrial and transportation fuel requirements weigh on the energy estimates. EIA forecasts crude oil prices to retreat to $63-68/bbl in 2022.

Nevertheless, OPEC has raised its oil demand forecast for Q1 2022, highlighting that the impact of the new Omicron variant on oil demand will be mild and short-lived as the world becomes better equipped to manage Covid-19 and its related challenges.

OPEC also predicts a jump in China’s oil consumption and other non-OECD Asian countries. Despite OPEC’s rosy scenario, there are also reports foreseeing a slowdown in China’s oil consumption in the first quarter due to stricter measures and lockdowns. The Winter Olympics, taking place in February, would be a major boost to the economy, if it were not for the zero-case policy and entry restrictions. The government’s plans to reduce air pollution ahead of the event lead to reduced operating rates and crimp oil demand.

To find out more about the impact of these underlying fundamentals on polymers

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