09 November 2007 16:14 [Source: ICIS news]
By Nigel Davis
The Henry Hub spot price on 7 November was up about 2% on the week at $7.34/m Btu (million British thermal units). All important gas inventories are high.
Working gas stocks hit a record high as of 2 November with 3,545bn cubic feet in storage, 8.9 percent above the five-year average.
But gas prices in the
And the way prices in continental
High gas prices have been an issue in the
Infrastructure investment, however, including the laying of two new gas pipelines under the
Prices this week, though, have been around the equivalent of $10/m Btu.
Producers do not so much fear high gas costs but sharply rising prices they can do without.
Add the industry’s concerns over the weaker dollar and you have the makings of an onslaught on European chemical industry competitiveness.
The sector currently appears to be taking higher costs in its stride but concerns have been raised about a possible demand slowdown which, coupled with higher input costs, could hit companies’ pricing power hard and subsequently dent margins.
Pricing power has slipped away downstream in the sector as companies such as Clariant have shown.
Some analysts believe it may not be long before producers in other segments lose influence in the marketplace.
A straw poll of producers and traders this week, when it looked as though oil would breach the $100/bbl mark, produced a range of comment.
Short-term production issues continue to have an impact on some markets while others, such as benzene, are feeling downward pressure from weak downstream demand.
Styrene traders said some products were still cheap in relation to crude.
The price of natural gas will certainly move up on the back of further crude gains, but with a delayed effect, one methanol trader said.
“Today’s oil prices only feature in a small way in today’s gas prices. But they increasingly get factored in as the weeks go by. So at this stage methanol producers are running on borrowed time,” he added.
Methanol producers would have to hedge production to avoid shutting down or losing money, another trader suggested.
“Winter gas is really strong for this time of year but cracks are not outside any of the historical ranges,” another said.
All is not rosy for US Gulf petrochemicals makers.
The natural gas cost differential is working in their favour; and at those relative natural gas prices, there are probably export opportunities to
But ethane feedstock prices have marched upwards with oil in recent months, so the input cost differential across a range of products is not as great as it first looks.
High priced oil and spiking gas costs hit the sector hard. Given the continued weakness of the US dollar, European bulk chemicals makers are in for a tough period.
ICIS pricing reporters conributed to this article
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