Global LAO Prices Plunge in July 2023 Amidst Industrial Slowdown and Crude Oil Disparity

Linear Alpha Olefin (LAO) prices have plunged significantly across the globe in the month of July 2023. While the prices of LAO plunged, the prices of crude oil across the globe showed a rising trend in the same period. Industrial activities declined across the globe as manufacturing PMI contracted in most of the regions. In this context, the prices of LAO serve as an important proxy for the health of industrial economic activity.

LAOs are hydrocarbons, the downstream Naphtha intermediate chemicals that are further processed to give olefins like ethylene and propylene, including higher olefins of C8 to C30. Propylene, ethylene, and smaller linear olefin chains are primarily used in the production of polymers like Polyethylene and polypropylene and its various grades, while the middle and higher olefin chains are used in the production of surfactants, lubricants, and detergents.

In the Asian market, the prices of LAO in the Chinese market plunged by 6.09% in the month of July 2023. A similar trend was observed in other East Asian markets. This plunge was corroborated by the decline in the Chinese Manufacturing PMI from 50.5 to 49.2, indicating a negative production volume in the given timeframe. A fall in PMI below 50 signifies that the operating rates were on the lower end and the mechanical Depreciation of Capital assets was not enough to generate the demand for maintenance. This is reflected in the pricing on LAO C16-C20 blends.

In European and North American Markets, the plunge in prices of LAO is more severe than that of the Asian Markets. The prices plunged by 14% in Germany, and the HCOB German manufacturing PMI fell to 38.8 in July 2023. German manufacturing has been in negative volumes since May 2022. With the Industrial activity declining, the demand for LAO declined. In the US, a decline of 13% was observed in the pricing of LAO C16-20 blends. The contraction in Industrial activities, which is reflected in the pricing of LAO in the US, is attributed to US Federal Reserve monetary tightening to control inflation which is affecting the demand from the domestic consumers, which is affecting the output (supply) from the industries.

The soft recovery in China, declining demand in Europe and North American markets, and increased energy costs have reduced demand for LAO globally. In their statements, major players like BASF, INEOS, Sasol, and others have affirmed that the LAO markets are expected to remain soft in the second half of 2023, and the expected market recovery will begin in 2024. BASF has recently announced the increment in the LAO Ludwigshafen facility. INEOS is also trimming the LAO and Olefins capacity across Europe in the expectation of good growth prospects in FY 2024.