03 October 2010 15:17 [Source: ICIS news]
Correction: In the ICIS story headlined “INSIGHT: View of 2011 depends where you're looking from” dated 3 October 2010, please read in the fourth paragraph … with high density (HDPE) 15% higher … instead of … 14% higher…. Please read in the ninth paragraph … lower than the record 26% … instead of … record 20%…. A corrected story follows.
By John Richardson and Malini Hariharan
Linear low density polyethylene (LLDPE) demand soared by 34%, with high density (HDPE) 15% higher.
LLDPE is tight globally because of a shortage of butene-1, which is not going to go away. This is the result of the switch to lighter cracker feeds in the
The polyolefin has also gained market share at the expense of low density PE (LDPE), which at first benefited from tight supply through higher pricing but now seems to be suffering from demand destruction.
LDPE demand in
This would be lower than the record 26% in the previous year but still very healthy.
The other big factor affecting the whole of the polyolefins industry has been delays in starting up new projects and stabilising production at complexes that were brought on stream over the last two years.
“Approximately 8m tonnes of PE that could have been exported from the
Saudi Arabia needs to be producing 10m bbl/day to run its gas crackers at 100%, but its OPEC quota stipulates that output in the mid-8m bbl/day range.
One could go on and on. In
Add all of this together and you could be tempted to draw the conclusion that 2011 will be as good, perhaps even better, than 2010.
“I think we are bumping along the bottom of the cycle as far as margins are concerned,” said a Taiwan-based financial analyst.
“South Korean companies are expecting another fly-up in pricing by the end of next year. My view is that this is a bit early, but it’s not far away.”
The danger in his thinking is that
“True, but I don’t expect oil demand globally to return to pre-crisis levels for at least three more years,” said a source with a leading
A common view remains that the longer maximum output is delayed in the
It feels like one almighty muddle when you balance this optimism against persistent macroeconomic worries in the west. Without a healthy west – which drives the vital re-export trade from
“As we move into the remainder of the year, the recovery has waned,” said the American Chemistry Council (ACC) in its third-quarter situation and outlook report, which was published last week. “The boost from inventory restocking has played out and underlying demand remains weak.”
The confusion has made forecasting supply and demand very difficult, according to a South Korea-based chemicals analyst.
“The fourth quarter is likely to be better than expected. Earnings for the South Korean companies may continue to be strong for the next two quarters and for the whole year will be higher than 2009,” he said.
DeWitt & Co, the petrochemicals consultancy, had factored in cracker operating problems but had not anticipated the extent of the difficulties at new crackers in the Middle East and other parts of Asia, such as
Nobody seems to have anticipated so much lost production.
“There is a big gap between actual production and nameplate capacity. Unless these crackers raise their production, the situation will remain good; margins will be positive,” added Razak.
Another argument being used is that the industry will heal itself even if margins decline as a result of closures of high-cost capacity.
But the source with the
“It is being argued that profitability will be back at peak levels by 2015,” said a London-based industry observer.
“Part of this argument for record profitability is that some people will shut down in the interim. But this is an oxymoron, as why would people shut down if record profitability is forecast?”
“The 2015 peak also assumes global GDP growth of 3.8% per year, which is far too high an estimate.”
A much more optimistic sales director with a North American polyolefins producer hopes that such pessimism is accepted by his company, as it will mean that he will continue to exceed his monthly targets.
We are just journalists who are required to mainly to stick to reporting what people tell us, and so we sincerely hope you haven’t read through this article expecting any definitive answers.
Looking for such answers elsewhere might turn out to be equally futile, but all of us have to keep on trying.
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