InterviewGlobal chemical markets face turmoil - consultant

23 September 2010 16:52  [Source: ICIS news]

By Will Beacham

LONDON (ICIS news)--Global chemical markets face major structural changes as lower refining rates and the switch to ethane cracking have knock-on effects for major building block substances, according to a UK-based consultant.

Commodity chemicals such as ethylene, propylene, butadiene, benzene and paraxylene will experience changes to pricing and availability in a new market environment, Paul Hodges, chairman of UK-headquartered chemical group International eChem told ICIS on Thursday.

Lower growth rates for oil products such as gasoline and diesel plus lower output from liquid feed crackers and more ethane cracking will make ethylene and paraxylene more freely available than in the past. However, propylene, butadiene and benzene are becoming more difficult to source, he said.

“For the first time ever, both propylene and butadiene are more highly priced than ethylene,” said Hodges. He explained that the shift to lighter feeds in the US and Europe is reducing operating rates for liquid-feed crackers which are major sources of propylene and butadiene as well as benzene.

Declining gasoline demand in Europe and the US caused by the shift to diesel in Europe and greater use of ethanol in the US is cutting refinery operating rates. “Refinery operating rates are an order of magnitude larger than chemical volumes. And so this, in turn, is also reducing propylene and benzene production,” he said.

These structural changes which have caused the price of propylene to move into parity with ethylene raise some important questions for chemical producers, said Hodges: “Should producers invest in more on-purpose production? Will refining rates remain weak and what might the impact be of China’s heavy investment in new refinery-based propylene production?”

Producers should also analyse whether propylene derivatives can be competitive at today’s higher relative prices. Also, “Will ethylene’s lower price, relative to propylene, raise its growth rate at propylene’s expense?”

He added: “Prudent producers and consumers might therefore want to develop a scenario-based approach to future planning.”

Read the complete Paul Hodges article “Changes leave the markets in turmoil” in the September 27 issue of ICIS Chemical Business.

Watch a video interview with Paul Hodges

Click here to read Paul Hodges' Chemicals and the Economy blog

To discuss issues facing the chemical industry go to ICIS connect

By: Will Beacham
+44 20 8652 3214

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