11 February 2004 17:06 [Source: ICIS news]
LONDON (CNI)--A lack of transparency in the pricing of petrochemicals in Europe and the US is driving prices down and leading companies into trouble, it was suggested here Wednesday at the annual Nexant Chem Systems European seminar.
Nexant Chem Systems principal, Richard Sleep, said that equity analysts and others were discounting the stock of publicly-traded petrochemical companies because of increasing price opacity. As Europe moves towards increased imports of petrochemicals, he suggested that pricing opacity will allow buyers to drive prices of imported products lower as sellers will be unable to gauge market prices.
Price transparency is far more important that contract frequency, he said, referring to moves by producers in Europe to switch to monthly contract prices.
Olefins, intermediates and polymers prices reported by respected organisations like Platts and ICIS-LOR (a sister company of CNI) are getting further from the true transaction prices because hidden discounts, rebates and allowances are widespread and growing, said Sleep. It is no longer possible for an equity analyst or oil industry executive to look at published petrochemical prices and draw conclusions on the likely performance of producers because of the impact of this over-estimation on profitability, he said.
Giving an example, he suggested that the return on replacement capital cost of a typical large West European naphtha cracker calculated using contract prices as indicated by price reporting services such as Platts and ICIS-LOR for the fourth quarter of 2003 was about 10%. The return using Nexant Chem Systems' estimated transaction prices was –2%, he declared.
This is an industry problem that is widespread and growing, Sleep said, adding that through its actions the industry is misleading price reporters and itself.
In a world of ever-increasing transparency it is bad for producers and consumers, he suggested, because producers assume their sales performance is better than it is and consumers believe their purchase performance is better than reality. It is bad for the industry because it discourages investment, he added.
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