US petchem values take cue from plunging stocks

10 October 2008 18:44  [Source: ICIS news]

By Stephen Burns

HOUSTON (ICIS news)--US petrochemical markets were in free-fall on Friday as the meltdown in global financial markets  painted a bleak outlook for downstream demand and wiped away standard ideas of value relationships, market sources said.

"There is no bottom in sight," an ethylene producer said.

In addition to turmoil in financial markets - and its impact on the upstream energy complex - US ethylene is also under pressure due to oversupply and weak demand, another market source said.

"Prices will continue to go south, there is no question about it," the source said.

US ethylene for Williams delivery was offered at 40 cents/lb ($882/tonne or €644/tonne) on Friday, down from an offer at 41.50 cents/lb on Thursday. Ethylene on the Williams system was last heard traded on Wednesday at 42 cents/lb, down from a deal at 51.75 cents/lb on 2 October.  

Prices might have fallen further but for the tightening of supply due to Hurricane Ike, sources said.

Propylene has also been plummeting this week, and no bid or offers were heard on Friday. Pipeline refinery-grade propylene (RGP) for October traded at 41.75 cents/lb on Thursday, down from 50.25 cents/lb a week earlier.

Aromatics values were likewise sliding as US gasoline values sank, on ideas that the financial turmoil would put the brakes even more sharply on demand for transport fuels in particular.

Spot benzene barges for October loading were talked at $3.00-3.20/gal FOB (free on board) US Gulf, down from $3.40-3.45/gal FOB on Thursday. November bids and offers were straddling $3.00/gal DDP (delivered, duty paid) HTC (Houston-Texas City), sources said.

Pessimism abounded about the state of downstream markets, with the US auto industry on the verge of collapse.  

Commenting on a fall in mixed xylenes to around $2.40/gal free on board (FOB) from $3.20-3.40/gal last week, an orthoxylene buyer said demand had evaporated.

"Nobody really wants to buy it," the source said.

The rapid pace of the slide in financial markets had sources groping for precedents on which to base price ideas for chemicals, but there was no solid basis for comparisons.

"Things are so strange right now, with the market and even crude oil falling. It’s almost like you’re speechless, you don’t know what to say," a maleic anhydride producer said.

A wholesale anti-freeze dealer said panic has taken over.

"Right now, folks are acting like Chicken Little – 'the sky is falling, the sky is falling'," the dealer said.

Wholesale anti-freeze prices have slumped 30-50 cents to around $6.00-6.50/gal, with retail prices likely to follow, he said.

An olefins trader said the effects of tighter credit are beginning to be felt, but some traders have yet to become aware of it.

"Everyone needs bridge loans, and banks are letting their customers know that they cannot let things slide with their counterparties, or their credit will be cut off," the trader said.

The credit issue is long term, and likely to last at least six or nine months, the trader said. However, in the short term, the dropping price of crude oil is altering seller practices.

"With the price of crude dipping below $90/bbl, sellers feel that they have to milk their inventory," the trader said.

Amid the chaos and confusion, the financial crisis and the plunge in petrochemical markets have generated a steady stream of instant-messenger humour among traders.

"This market is worse than a divorce – I have lost more than half my wealth, and I still have my wife," a fuel oil trader said.

($1 = €0.73)

Additional reporting by David Barry, William Lemos, David Rosen, Steven McGinn and Gene Lockard

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