BASF cutbacks follow massive US price drops

19 November 2008 22:26  [Source: ICIS news]

By Al Greenwood

HOUSTON (ICIS news)--German major BASF is cutting capacity at a time of substantial price drops, market sources said on Wednesday.

BASF is idling 80 plants and cutting production at 100 more. BASF cited falling demand, inventory destocking and tightened credit in announcing the cutbacks.

Indeed, few can recall when polyolefin prices have dropped so steeply and so quickly, said Ron Coifman, editor for the Plastic Market Monthly reports at Townsend's Polymer Services & Information.

Bulk low density polyethylene (LDPE) film was assessed at 61-63 cents/lb ($1,345-$1,389/tonne, €1,062-1,097/tonne), down from a 2008 high of 95-98 cents/lb, according to global chemical market intelligence service ICIS pricing.

Bulk injection-grade polypropylene (PP) was assessed at 42-45 cents/lb, down from a 2008 high of 99.50-104 cents/lb. General-purpose polystyrene (PS) was 91.50-95.50 cents/lb, down from a high of 107.50-112.50 cents/lb

A combination of weak demand and destocking are driving the price drops, Coifman said.

The global economic slowdown is causing the weak demand, he said. As prices fall, customers are depleting inventories.

"They don't want to end up holding expensive inventory," Coifman said. "They're just waiting for the market to reach bottom."

The price-driven destocking comes at a time when customers typically do their end-of-the-year destocking, he said.

Some speculate that prices could bottom out in early 2009, Coifman said. Prices might then rise slowly for the rest of the year.

A rally in crude oil prices could also lift the market, Coifman said.

BASF's announcement comes as other chemical majors noted similar destocking trends and weak demand.

LyondellBasell said destocking could continue through the rest of the year,

INEOS said a collapse in petrochemical demand led it to seek covenant waivers from lenders.

Dow Chemical chief executive Andrew Liveris said his company's sales volumes have fallen by 10-20% in the fourth quarter, and weaker sales should continue through the first half of 2009.

Indeed, weaker demand is driving down prices. US benzene prices are near seven-year lows.

A methanol producer said the price drop in his market was exaggerated. “We’ll have some resurgence of demand coming back, I think, after the start of the new year.”

A methanol trader was not as optimistic. He called BASF's announcement "a good piece of bad news”.

He said: “It is something that I was expecting and a trend that will continue for balance of the year, beginning next year.”

A toluene di-isocyanate (TDI) trader said BASF's announcement was not surprising as producers were trying to maintain price through the end of the year.

“It’s simple. They are trying to control the market price," he said.

However, the BASF cuts will likely have little effect on TDI because inventories are already full, he said.

The US TDI market, which is linked to the ailing automotive and furniture industries, has maintained its prices despite about a 27% drop in TDI prices in Europe and Asia in the past month.

Additional reporting by Leela Landress and Steven McGinn

($1 = €0.79)

For more on BASF visit ICIS company intelligence
For more on PE, PP, PS or methanol, visit ICIS chemical intelligence
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By: Al Greenwood
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