Chemicals industry heading for crisis - Citigroup

16 June 2008 10:53  [Source: ICIS news]

LONDON (ICIS news)--The raw materials squeeze is plunging the global chemicals industry into crisis as producers announce production cutbacks and across-the-board price increases, Citigroup said on Monday.

 

The bank said its analysis showed that “second derivatives” of oil like polyethylene (PE), acrylics, epoxy and polystyrene (PS) have risen only 20-40%, while at the same time feedstocks have risen 105%.

 

“The raw material squeeze is looking more like a crisis, as feedstock costs are soaring, said the investment bank in a note to investors.

 

“What is unusual for this cycle is that oil prices are surging while the economy is slowing, creating a huge pinch for those caught between Big Oil and the consumer,” it said.

 

While many producers have cut back production amid negative margins, Dow Chemical’s announcement of a 20% across-the-board price hike preceded a tidal wave of price increases across specialty chemicals.

 

“While we think it is unlikely that producers will capture the entire price nominations, it is proof that we have crossed into new territory,” said Citigroup.

By: Mark Watts
+44 20 8652 3214

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