APLA ´08: Petchems to tread steep 6-month hill

16 November 2008 21:09  [Source: ICIS news]

RIO DE JANEIRO (ICIS news)--Global petrochemical demand will remain weak until at least mid-2009, during which the industry will likely see layoffs and more shutdowns, consulting firm Nexant said on Sunday.

If US consumer confidence improves in the first half, demand could pick up after the middle of the year, Nexant associate Robert Bauman said on the sidelines of the 28th Latin American Petrochemical Annual Meeting (APLA).

According to the consultant, US consumer confidence is now at its lowest level in 50 years.

Bauman said petrochemical prices will continue to drop in the coming months along with a sustained softening in the upstream energy complex.

But the drop in prices will not help trigger demand because consumer confidence will remain low, he said.

“The situation is bad…because this is a like a pendulum that has swung too far over to one side.”

“Petrochemical companies will definitely lay off people,” Bauman predicted.

The slowdown will be particularly hard for chemicals used in durable goods and construction, including polystyrene (PS) and polyvinyl chloride (PVC), he said.

Polyethylene (PE) will fare better because people may spend less but they still have to eat, the consultant said, referring to PE applications used in food packaging.

Bauman was optimistic about the incoming administration of US President-elect Barack Obama.

US consumer confidence could improve under Obama and that would help spur demand for petrochemicals, he said.

“The first 100 days of Obama’s presidency will set the tone for the next couple of years,” Bauman said.

“The problem with the US is not that everyone is losing their jobs…it is because people are just not spending.”

“US consumers are now focusing on paying down debt,” he said.

Consumer spending represents 70% of gross domestic product (GDP) and unless confidence improves nothing will happen, Bauman said.

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By: William Lemos
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