10 July 2007 17:04 [Source: ICIS news]
By Mark Watts
LONDON (ICIS news)--As the US economy heads towards a housing market slump, commodity chemicals producers will struggle to pass off higher feedstock cost-fuelled product prices amid slowing consumer demand.
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Reports this week point to
US manufacturing growth will also slow significantly this year as the nation's GDP growth decelerates.
The first quarter of 2007 saw the lowest growth (0.6%) in five years, causing the
The housing slowdown is also affecting pricing and volume for paints, durables and carpets. Pricing is a larger concern than volume because the cost of oil has recently increased, squeezing margins.
Many commentators have predicted the housing slump will carry on into 2008.
Demand for polyvinyl chloride (PVC) pipes and insulation is affected too, while a general slowdown in manufacturing and overall production is certain to have wider consequences for the industry.
Analysts at Deutsche Bank in
This was subject to the combined impact of mortgage resets, negative housing wealth effects, high energy costs, low personal savings and high household debt burdens.
Although ethylene producers have nominated a July contract price increase of 3-5 cents/lb, downstream demand is only expected to support a 1 cent/lb increase.
Ethylene margins were expected to remain in their current mid-cycle territory of under 10 cents/lb.
“For the balance of 2007, we believe that a muted supply/demand outlook and a generally high feedstock cost environment will challenge ethylene markets entering 2008 when the industry is expected to transition into a cyclical trough,” said Deutsche Bank.
Among the major olefins derivatives however, polyethylene is seeing above average demand due to good export economics.
Demand for polypropylene (PP) has been particularly soft. Propylene prices shot up earlier this year due to refinery problems and PP demand could not keep up with the rise.
Despite the downturn in overall economic growth, a recent report by the Institute for Supply Management showed an improvement in US manufacturing in June. Also, US jobs were being created faster than expected, according to Kevin Swift, chief economist of the American Chemical Council (ACC), with 132,000 non-farm working jobs created in June.
“It is these steady gains in employment coupled with rising earnings - from a tight labour market - that are largely supporting consumer spending and the economy,” Swift told ICIS news last week.
Perhaps this tiny ray of hope might just help provide the platform for chemical product demand to recover.
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