Commentary: Outlook is gloomy as NPRA kicks off

23 March 2009 00:00  [Source: ICB]

A somber mood is to be expected at this week's National Petrochemical and Refiners Association (NPRA) international conference in San Antonio, Texas, US.

Last week's filing for bankruptcy protection by US specialty group Chemtura adds to the growing list of casualties as the recession bites hard at the chemical industry.

This year is expected to be the worst since World War II in economic and chemical growth, according to US-based Barclay's Capital. They suggest the global economy has "borrowed" a few percentage points of growth, which must now be paid back after the collapse of credit markets.

In Europe, ethylene margins have disappeared, according to the ICIS European spot model. In January and February they fell to almost nothing, representing a worldwide downward cash flow adjustment of €40bn/year ($54bn/year) if this is used as a global proxy.

China is also suffering. It experienced its first recorded drop in domestic production of ethylene, polyethylene and benzene in 2008.

Looking on the bright side, the collapse in money supply and demand for polymers at least may mean delay or cancellation of many Middle East projects. Those under construction will probably be completed, albeit late, but there are signs that some in the next wave - those still in the planning stage - are being reevaluated.

Some Middle Eastern banks are facing liquidity problems, and international lenders that were previously throwing money at projects are no longer willing to consider cross-border financing.

We must hope that these delays, plus the capacity shutdowns now being announced, will tighten markets once growth picks up.

"We must hope these delays will tighten markets once growth picks up"

Do you agree or disagree? Email deputy editor Will Beacham

By: Will Beacham
+44 20 8652 3214

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