China MEK Prices Begin Q2 2024 On Weaker Note Amidst Falling Demand

Shanghai (China): In mid to late March 2024, the Methyl Ethyl Ketone (MEK) market showed downturn in the Chinese domestic market, mainly due to sluggish demand in downstream industries like paint, coating, and other end-use industries stemming from a construction slowdown in China. Additionally, the enduringly low prices of feedstock butanol and coal have contributed to reducing the production costs of MEK amid a slow economic resurgence.

The MEK market embarked on a gradual downward trajectory. Despite this decline, China's manufacturing sector exhibited growth, offering some solace to policymakers amidst challenges in the property domain. Despite the manufacturing sector's positive performance, the real estate market in China continued to grapple with hurdles, particularly evident in a significant downturn in home sales, indicating persistent weakness in the sector.

Recent data from China Real Estate unveiled a stark 46% plummet in the value of new-home sales compared to the preceding year, following a notable 60% decrease in February. Considering subdued demand, negotiations within the MEK market leaned towards lower levels. Additionally, Chinese producer Sinopec disclosed a 12.9% drop in net profit for the full year 2023, attributed to declining product prices and operational losses in chemicals. Consequently, enthusiasm among downstream players for spot goods remained muted.

Market participants are exercising caution as indicators such as home buying, financing, and construction starts for real estate firms continue on a downward trajectory. Despite these challenges, the Chinese government has taken steps to stimulate growth in the construction sector, including implementing its largest reduction in benchmark mortgage rates.

These measures are aimed at bolstering the struggling real estate market. As a result of these efforts, China's manufacturing activity showed signs of improvement, expanding for the first time in six months in March. However, despite these modest improvements, the Chinese real estate market remains beset by challenges. Simultaneously, upstream crude oil prices are on a slow but steady rise, driven by geopolitical tensions and refinery outages in Russia due to Ukrainian drone attacks.

Moreover, concerns among traders are escalating in the Middle East due to the potential for attacks on Saudi refineries by Iran-backed Houthis, leading to heightened regional tensions. Despite these factors, the overall price of MEK remains subdued. This subdued pricing can be attributed to low feedstock butanol prices and sluggish demand in downstream paint and coating industries, resulting in high inventory levels and subdued buying enthusiasm.

Additionally, persistently low coal prices have contributed to reducing the production costs of MEK amid a sluggish economic recovery. The reduced activity in the construction sector has translated into fewer inquiries for MEK from downstream industries. Consequently, the domestic demand market for MEK has experienced overall poor performance. Consequently, the market has begun to feel the effects of reduced demand, resulting in increased supply pressure.

ChemAnalyst forecasts a rise in MEK prices in the coming months, propelled by anticipated improvements in demand from both domestic and international markets. This forecast is underpinned by the Chinese government's initiatives to bolster the construction sector, which bodes well for MEK prices in the near term. The projected increase in MEK prices mirrors the growing demand across various industries, including construction, paint, coating, and adhesives.