US chemical values sliding on financial gloom

08 October 2008 18:10  [Source: ICIS news]

By Stephen Burns

HOUSTON (ICIS news)--Most US chemical prices were being dragged lower by the plunge in global financial markets and the deteriorating economic outlook, despite lingering supply tightness after Hurricane Ike, market participants said on Wednesday.

"As fear overtakes greed as the motivator of choice, and people believe the self-fulfilling prophecies of the pundits that we are in an extended global recession, we will see downstream product demand drop off," an acrylates buyer said, predicting lower prices in that market.

Aromatics and olefins markets had begun slipping on Tuesday afternoon, and the downtrend has built further momentum as desperate efforts by global governments and central banks on Wednesday have failed to arrest the collapse of investor confidence in financial markets.

US refinery-grade propylene (RGP) values have taken a lead, with RGP for October plunging to an offer at 44 cents/lb ($970/tonne, €708/tonne), down from offers at 47 cents/lb on Tuesday and 48 cents/lb on Monday. October RGP for pipeline delivery was last heard traded on 2 October at 50.25 cents/lb.

RGP prices were now down by more than 20% from a month ago.

US ethylene prices were also softening after last trading on 3 October at 56.00 cents/lb on the Equistar system. Spot material was offered on Tuesday at 55 cents/lb for Equistar and 49 cents/lb for Williams delivery, but no bids or offers were heard so far on Wednesday.

With crude oil and gasoline values plunging - NYMEX RBOB gasoline futures fell below $2.00/gal (€0.39/litre) on Wednesday for the first time in more than a year - the downward pressure on aromatics has intensified.

US benzene spot prices for October delivery continued to weaken, with Wednesday's bid/offer spread heard at $3.50-3.60/gal DDP (delivered, duty paid) HTC (Houston-Texas City), a lower and wider range than $3.63-3.65/gal DDP HTC a day earlier. 

A surge of benzene imports, as well as lower crude oil markets, were cited as reasons for the benzene spot market’s decline.

US toluene spot bids and offers have plummeted to $2.50-2.65/gal, down sharply from the notional range of $3.20-3.40/gal at the end of last week.

On Tuesday, the Energy Information Administration (EIA) slashed another 220,000 bbl/day off a month-old forecast for US oil product demand, which it now sees averaging 19.8m bbl/day for 2008 - down from 20.6m bbl/day in 2007.

The EIA attributed its revision in part to the deteriorating economic picture.

On Wednesday, Deutsche Bank said its economists fear they are being too optimistic about the US outlook, even though they had revised their 2009 US growth forecast to zero from 1%.

The weak downstream demand outlook was keeping the brakes on methanol despite this week's news of a 10-week outage at a major producer in Trinidad & Tobago.

Market sources said the sluggish demand only prompted spot prices to jump up less than 10 cents, to around $1.33-1.37/gal FOB (free on board) USG (US Gulf). In contrast, an extended outage at the same plant two years ago sent methanol prices skyrocketing.

The sources said the crash in the new home construction market has eroded demand for methanol, a key feedstock for formaldehyde and resins.

The financial turmoil is creating difficulties for Latin American chemical markets and the US exporters who supply them, because of foreign-exchange volatility.

Buyers and sellers of petrochemicals in Latin America face tighter credit availability and continued volatility in variable costs.

A South American plastics producer said this will be especially challenging for economies like Argentina, which was already showing signs of slowing before the US housing and financial sectors tanked.

Still, some sellers were still holding fast to efforts to recoup previous increases in feedstock costs.

In one case, SABIC Innovative Plastics told buyers that tight feedstock supply has forced it to raise prices by 10 cents/lb each on the plastics polycarbonate (PC) and acrylonitrile-styrene-butadiene (ABS).  

Buyers said SABIC’s lock on the medical-grade plastics market could help it realise the increase on ABS, but the PC hike could prove more difficult.

With additional reporting by Larry Terry, Steven McGinn, David Barry, William Lemos, Gene Lockard, Landon Feller, and Ben Lefebvre

($1 = €0.73)

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By: Stephen Burns
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