Global PAO prices Gravitate on High Inventories and Low Consumption in Early December 2023

In the initial half of December 2023, the Polyalphaolefin (PAO) market in both the European and North American regions witnessed a bearish trajectory, marked by a notable decline in prices. This downturn in PAO prices can be ascribed to two principal factors that exerted considerable influence on the market dynamics. Firstly, the noteworthy decrease in the price of Crude Oil, a pivotal component in the upstream processes of PAO production, played a pivotal role in driving down the overall production costs. Secondly, the PAO market continued to exhibit lacklustre performance as the year approached its conclusion, characterized by minimal signs of activity and persistently weak spot demand. The confluence of these factors created a downward cost pressure, contributing to the decrement in PAO prices.

In the United States market, a bearish sentiment unfolded throughout the initial half of December 2023 in the PAO sector. The decline in PAO prices during this period can be predominantly ascribed to an oversupply of the product in the U.S. market, coupled with a reduction in demand from the lubricant and automotive industries. Data released by the National Automobile Dealers Association (NADA) indicates that the seasonally adjusted annual rate for new light-vehicle sales reached 15.3 million units, signalling the second consecutive month of a decline in the seasonally adjusted annual rate. Simultaneously, the international market maintained a subdued stance during this period, as producers directed their attention towards fulfilling contracted volumes prior to potential spot availability for January. Further, the market encountered challenges stemming from surplus material availability, exacerbated by persistent bottlenecks in the Panama Canal—a critical global trading route originating from the United States. Consequently, delayed shipments to the international market ensued, resulting in an accumulation of PAO inventories within the country. Additionally, insight from NADA data reveals that the light-week inventory reached its 20-month peak in November 2023. As inventory levels expanded within the automotive industry, downstream demand for PAO witnessed a substantial decline. The amalgamation of these factors contributed to a narrowed gap between demand and supply, thereby reinforcing the ongoing decline in prices.

Simultaneously, in the European region the PAO market has unfolded a phase of stagnancy throughout the first half of December 2023. This price stagnancy is primarily attributed with diminished demand of the material from the downstream lubricant and automotive industry along with surplus availability of material. Notably, there was a noticeable absence of fresh orders from the downstream lubricant and automotive throughout the week. The demand from this segment was significantly impacted by reduced economic activities, largely influenced by inflationary pressures across the region. In the broader economic context, the European market recorded a positive inflation rate of 3.2% in November 2023 compared to the previous month, as reported by the European Statistics Department, providing a contextual backdrop for the market dynamics. Furthermore, the persistent lack of indications for a revival in downstream automotive demand for PAO remained muted during the first two weeks of December 2023.

According to ChemAnalyst, there is an expectation that PAO prices will persist at lower levels in the upcoming months. This projection is based on the sustained decrease in feedstock prices and the surplus availability of the material. The interaction between these factors is foreseen to result in a sustained downward trend in PAO prices, reflecting the broader market dynamics and prevailing conditions.