Margins recover, demand hits downstream - report

03 October 2008 11:17  [Source: ICIS news]

By Hilde Ovrebekk

LONDON (ICIS news)--Global petrochemicals margins have recovered in the third quarter as feedstock costs have fallen although a slowdown in demand is affecting downstream business, Nexant Chemsystems said on Friday.

“The decline in feedstock pricing has recovered petrochemical profitability to a typical mid-cycle level from the low level seen for quarter two,” said the industry consultants in a series of reports.

They said cracker profitability had improved markedly from the weak position seen in the second quarter as contract prices for olefins in all regions adjusted upwards in response to feedstock cost pressures.

“Although downstream petrochemical operations have certainly benefited from the easing in feedstock prices, the impact on the demand side has been severe with slow orders and inventory draw-downs affecting many derivative chains,” Nexant added.

The weak market had impacted on intermediates and polymers in the third quarter as the industry recovered some pricing power for basic chemicals, said the consultants. 

“The picture was somewhat healthier in Asian markets with polymer prices managing to rise ahead of ethylene as the latter came under pressure from imported cargoes from the Middle East,” they added.  

Demand continued to slow globally, said the report.

Western Europe looked likely to have moved into a technical recession, while markets in the US were impacted by the fall-out in the credit markets as well as by hurricane-related outages.

In Asia demand was affected by shutdowns at manufacturing units in the Beijing area and the continued availability of material from the high inventories built up to see out these shutdowns, said Nexant.

It added that volatile crude oil markets and strong gasoline prices had continued to maintain naphtha prices at new record highs in the third quarter. 

“Japan set the ceiling for naphtha prices, hitting $1,250/tonne in early July. LPG [liquefied petroleum gas] prices have continued to ease relative to naphtha on slow seasonal heating demand,” said the consultants.   

“While natural gas prices have fallen in the United States, the benefit has not been seen through to ethane which saw prices rebound after failing to track increased gas prices in quarter two,” they added.

Nexant's "Quarterly Business Analysis reports" review regional trends in production economics for commodity petrochemicals and polymers in Western Europe, US and Asia Pacific.

The reports are published as part of ChemSystems Petroleum and Petrochemical Economics Program (PPE).

To discuss issues facing the chemical industry go to ICIS connect

By: Hilde Ovrebekk
+44 20 8652 3214

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