07 November 2011 17:09 [Source: ICIS news]
By Nigel Davis
LONDON (ICIS)--The steep drop in prices globally is hitting chemical companies hard, driving cash margins lower for integrated as well as standalone producers.
The speed of the fall has been surprising in some ways but has mirrored the deep uncertainty that has gripped financial and commodity markets.
Chemical producers and buyers have responded by cutting their operating rates and inventory. No-one wants to be caught with high-priced stocks if prices fall further.
Benzene prices in northwest ?xml:namespace>
Hodges noted that high density polyethylene (HDPE) prices in the
The price falls generally reflect weakness in important end-use markets for chemicals such as textiles.
Producers had a successful first three quarters of 2011 and were able to post year-on-year growth in sales and profits. But some parts of the industry were already showing weakness in the third quarter – the decorative paints business being one. Volumes were weaker and prices were under pressure.
However, particularly in the past few weeks, producer prices have dropped, in some instances sharply. Butadiene is a case in point – and is one of the products that has made a great deal of money for companies cracking naphtha.
Butadiene prices in northeast Asia have plunged by close to $900/tonne in the past month, and were at close to $1,600/tonne free delivered (FD)
Crackers and downstream product makers have been hit hard by the price slump, with the data suggesting that some should be loss-making.
ICIS data suggest that a representative production complex in northeast
The ICIS variable cash-cost margin looks at a typical naphtha cracker producing ethylene and cracker co-products (such as propylene, C4s such as butadiene, and aromatics) and downstream units for high density polyethylene (HDPE), styrene and polypropylene (PP).
The chemical facility variable cash-cost margin turned negative on last week’s product prices and naphtha/utility costs model.
The average northeast
In the past few weeks, however, the rapidly declining butadiene price and lower olefins prices generally have eaten into margins.
The impact on producers in northeast
Ethylene (naphtha) margins for complexes in southeast Asia were at a 29-month low, although ethylene prices were unchanged from the previous week.
Naphtha cracking in
On Monday, ICIS said that contract ethylene cracker margins based on naphtha feedstock are down by 30% this week, and are at their lowest level since April.
Contract margins fell by €162/tonne ($224/tonne) week-on-week because of a 4% rise in feedstock costs. A slight rise in naphtha values was magnified by a 3% strengthening of the US dollar.
The November ethylene contract in Europe settled at €1,095/tonne FD (free delivered) NWE (northwest
Make sense of business cash costs with ICIS weekly margin reports
For more on ethylene read ICIS chemical intelligence
Read Paul Hodges’ Chemicals & the Economy blog
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($1 = €0.73)
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