Rising transportation costs may impact markets

24 September 2008 03:37  [Source: ICIS news]

ATLANTA, Georgia (ICIS news)--Rising transportation costs due to higher oil prices could deter chemical shipments from regions with growing capacities, the chairman of a supply chain planning company said on Tuesday.

The Middle East is due to have a large amount of petrochemical capacity come on line in the next few years.

However, rising transportation costs threaten to take a larger bite out of chemical profits, WAM Systems chief executive Jack Weiss said at the LogiChem chemical supply chain conference.

He referred to a Wall Street Journal article, which said high oil prices were forcing companies to rethink their strategies in making goods and moving them to market.

Every $10/bbl increase in the price of oil results in a four-cents-per-mile increase in transportation rates, according to the Wall Street Journal.

The situation is especially true for makers of chemicals, which have low profit margins and long life cycles, according to the Wall Street Journal.

With higher transportation costs, companies are looking at ways to shorten the distance from plants and factories to the nearest market, according to the article.

Despite recently falling prices, the expiring October contract for Nymex light sweet crude jumped on Monday more than $25/bbl to reach a record $130/bbl before settling at $120.92/bbl. November futures on Tuesday settled at $106.61.

Weiss said a survey by his firm showed that chemical executives continue to worry about volatile energy and feedstock costs.

Global oil production growth continues to lag behind the world GDP, he said.

Natural gas prices are also high and volatile, but natural gas is only half as expensive as oil in terms of energy content, Weiss said.

However, chemical prices in the US have held steady despite a recent drop in oil prices, Weiss said.

The LogiChem conference continues through Wednesday.

To discuss issues facing the chemical industry go to ICIS connect.

By: Brian Ford
+1 713 525 2653

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