08 April 2008 22:06 [Source: ICIS news]
By Peter Salisbury
LONDON (ICIS news)--Be it for business or pleasure, one word is on the lips of every European visitor to the ?xml:namespace>
It has become increasingly rare that a quick jet across the pond doesn’t involve picking up a nano, touch, iPhone or some other Apple paraphernalia for friends, family or, frankly, a few extra quid when touching down on European soil.
A quick scan on the internet shows why: an eight-gigabyte nano will set the average German consumer back about €190 ($298), while Americans pay $180.
At current exchange rates, this means that lovers of tiny Apple technology in the
If we subscribe to The Economist’s Big Mac Index of currency exchange - a bank in
But if he can take a trip to
As analysts predict the dollar topping $1.60 or even $1.65, however, the principle that keeps a German benzene producer stylishly entertained could spell disaster for his regional industry.
Specialty chemicals, much like the iPod, have a fixed base of raw material costs. Inter-regional markets are traded in dollars, and many upstream products close to the refinery and cracking stage of production in Europe as in the
Given a stable global economy, and hence stable currencies and demand for end-use products, the flow of material between regions on open arbitrage windows should be globalisation at its best: a seamless interconnected stream of supply and demand unfettered by geographical boundaries.
As is the case now, however, poor demand for material and a weak currency in one region could lead producers, traders and distributors to see stronger economies as a lucrative sponge for their end products.
The more upstream the product, the less affected it will be as it will be closer to a US dollar cost base, giving European players a cost advantage on their greater buying power. The further downstream, however, and the more euro costs come into the mix - through administration and manpower.
“If you go to the specialties the cost base is more weighted to personnel and less to feedstocks,” says Tobias Mock, chemicals sector ratings director at analysts Standard and Poor’s. “So the guys who have euro or Swiss franc cost bases, say, they will be less competitive than those with dollar bases.”
Let’s go back to the iPod. The outer casing of the nano is made of a product called polymethyl methacrylate (PMMA), a polymer of methyl methacrylate (MMA). MMA is, in turn, made from methanol and MMA acetone. Acetone is a by-product of phenol production. Phenol is, in turn made from cumene, which is - gasp - made from benzene and propylene.
At the close of business on Tuesday 8 April, benzene in Europe was valued at $1,165-1,170/tonne CIF (cost, insurance and freight) ARA (Amsterdam, Rotterdam, Antwerp) in Europe while in Asia it was valued at $1,090-1,100/tonne FOB (free on board) Korea.
Global chemical market intelligence service ICIS pricing, meanwhile, valued spot methanol and polymer grade propylene in Europe at €235-245/tonne FOB
At the same time in
We see that at the raw material stage, closer to the dollar markets, there is very little difference in pricing, with
Spot MMA in Asia at this time was valued at $1,880-1,930/tonne CFR Korea, while in
Thankfully for European MMA and PMMA producers, product is tight in
In other markets, however, this has not been the case. A European butanediol buyer recently told ICIS pricing that he now almost exclusively sourced his feedstock supplies from
European aromatics traders, meanwhile, have been discussing the import of polystyrene and expandable polystyrene from
Expected styrene length on the back of outages within
But contracts fell €28-53/tonne in April as the weakening dollar meant that a $12/tonne erosion of benzene spot prices in March, which in turn meant a €47/tonne drop in equivalent euro values.
Speaking to ICIS news on 13 March, International Echem chairman Paul Hodges warned that emerging capacities in Asia with lower cost bases could spell disaster for production in
Mock, however, urged caution, saying that the European production was far more resilient than was often assumed.
“If you had polled five analysts four years ago and asked them what the dollar at one fifty against the euro would mean for production over here they would have told you it was the end,” he said.
($1 = €0.64)
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