02 April 2008 11:10 [Source: ICIS news]
HOUSTON (ICIS news)--If you are too young to remember what a real recession feels like you might be clinging onto the hope that this downturn will be short-lived. Or perhaps it is just a question of perception.
“Americans tend to react to what they see on TV and are very sentiment-driven. The sentiment is very negative, but that could quickly change,” said Stacy Methvin, president and CEO of Shell Chemical LP.
She was speaking on the sidelines of this week’s 33rd National Petrochemical and Refiners Association (NPRA) conference in ?xml:namespace>
The mood of the event in general was one of looking at the evidence down all the product chains and concluding that things are not universally bad in the
Liquid cracker margins are chronically squeezed, whereas some gas-cracker margins are good because of the relatively cheap price of natural gas. Several of the downstream markets are also showing resilience.
The weak dollar is obviously creating advantages for some of these markets for either direct or indirect chemicals exports. The
This led to the hope that exports alone would be sufficient to tide the industry over until the overall economic cycle recovers - a theory that Joe Zidle, economist with Merrill Lynch dismissed.
Speaking at last week’s DeWitt World Petrochemical Conference in
And so it comes back to the level of consumer confidence which is reflected, or maybe created, by universally gloomy press coverage. As most people get their news from the TV, and TV tends to be sensationalist and short term in perspective to get the ratings up, this is a worry.
But drive through rural
If you had asked any two people during the NPRA what their views were on the direction of crude prices, you would get at least three opinions.
Perhaps crude is the biggest single factor that could determine whether the recovery is V-shaped or the dreaded hockey stick - a long, drawn-out bumping along the bottom for maybe two or three years.
If high crude persists, inflation will continue to eat into the crucially important confidence of the consumer.
Recent benzene prices reflected both the high price of crude and weak consumer spending.
Pricing in the
The strength of the
But if gasoline prices remain above $3/gallon, consumer confidence could remain weak and the political pressure will mount in election year for punitive taxes on the big oil companies.
Opinions on the direction of crude pricing at the NPRA varied from as low as $75/bbl by the end of 2008 to as high as $150/bbl. The majority view was that crude could not fall below $80/bbl because of the strength of emerging markets demand.
Andy Nicholson, consultant with DeWitt, caustically remarked that if there was a full-blown Wall Street collapse, the trader’s premium on crude, which he estimated at $45/bbl, would disappear.
A collapse of the financial system would make the length of the flat line at the bottom of the hockey stick-shaped recession almost as long as the distance between
In early March, the sentiment in
At that time, pricing seemed likely to weaken. However, it promptly recovered and for many grades rose well above $1,500 tonne CFR China.
“I am afraid this is the last big push to make some money before things turn bad. Producers are taking advantage of temporarily tight market conditions to maximise their returns,” said an Asian polyolefins producer.
The reality is that the approximately 6.5m tonne/year of Middle East and Asian capacity, which is due on stream between now and early 2009, will reduce export opportunities for the
The strength of
GDP growth is likely to be lower this year - at 8-9% compared with 11.4% in 2007 - and everyone is worried about the post Beijing Olympics demand-growth slump.
The major structural changes the Chinese government is making in its export industries will have a negative effect on import volumes in the short term, even if the long-term prospects remain good.
A huge readjustment is also set to take place in styrene trade patterns because of big new capacities in the Middle and
Further restructuring in the North American styrenics industry seems inevitable with perhaps the equivalent of as many as 3-4 world scale styrene plants in need of closure.
The implications for Asian benzene balances are severe as a result of both a weaker
Asia has traditionally used the
Aromatics margins were at chronically low levels in
As a result, even pygas was shipped from Asia to the
The more traditional benzene trade surged. The South Koreans, for example, shipped 220,000 tonnes to the
Remaining with benzene as an example, more than 1m tonnes/year of highly competitive coal-based capacity could come on stream in
A further problem for the global benzene trade are new gasoline regulations in the US - MSAT II - which come into force on 1 January 2011. This could lead to a great deal more extraction taking place.
“It is not a question of whether we have to further restructure our petrochemical industry, it is only a question of when and I expect some announcements this year. I expect more consolidation across several sectors,” said a senior Japanese industry executive.
But assuming that the world does not enter into a 1970s recession, the petrochemicals industry could recover - and potentially very quickly.
Those that cannot remember the 1970s might even be too young - or too panicky because of what they have seen on CNN or Fox News - to realise that there could be a repeat of the under-investment and over-investment cycle.
Very few producers are likely to be able to firm-up projects over the next 12-18 months because of the state of financial markets and earnings.
Gas supplies are also at higher premiums and in tighter supply in the Gulf Co-operation Council (GCC) region of the
Capacity shortages are quite possible beyond 2012 - meaning that the
Gas-based production outside the GCC and coal-to-chemicals are being talked about a great deal - often connected with methanol-to-olefins technologies.
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