Asian Chemical Connections

By Malini Hariharan

A turnaround in petrochemical fortunes in the US, as a result of falling gas prices, means that Dow Chemical is willing to wait to get the best value for its basic chemicals business.

At an earnings call last week, the company's ceo, Andrew Liveris, was clear that while Dow was committed to its asset light strategy it was also in no rush to form a joint venture.

"The fact that this business is earning this much money has made the business more valuable and we are definitely taking our time in structuring the right deal.

"Even though these are trough like conditions, the business is earning four to five times what is earned in the '01 and '02 trough, which is a spectacular statement," he said.

Dow's basic plastics unit reported $718m in first-quarter earnings before interest, tax, depreciation and amortisation (EBITDA). That was up substantially from $122m reported for the same time last year.

Dow was now intent on making the most money from a basic plastics joint venture, Liveris said.

Liveris was also optimistic that the rise in shale gas production would allow US petrochemical producers to retain their competitive position in the future.

"If you go into the next several years and you take the shale gas production that will come online in this country, then that in our view is a sustainable advantage for some years. The consequence of that is that US natural gas will start to stabilise, be less volatile as will indeed natural gas liquids (NGL),"

Another advantage was the flexibility of US crackers to take a variety of feedstocks.

"Ours is the most flexible in the industry. It has made the business and the assets more valuable for the foreseeable future," he added.

Too good to be true?,.,,,,,

Source of picture: http://www.arico.tw/en/index.php

By John Richardson

I VISITED the Chinaplas plastics exhibition in Shanghai late last month and was greeted with a wall of unremitting optimism.

Here are a few samples of the incredibly bullish comments from senior industry executives (a fuller version of what was said during the event - which attracted around 75,000 visitors over just four days - will appear in next week's ICIS Chemical Business).

"Just before I put my head on the pillow the other night, it occurred to me that China is now entering a second phase of development in its plastics processing sector," said the vice-president of a major Asian polyolefin producer.

"At first they built conversion capacity on the edges of cities and towns because they wanted to take advantage of cheap loans and to acquire land that would appreciate in value.

"As a result, they often didn't care that much about the quality of the finished products. So in the case of biaxially oriented polypropylene (BOPP) finished-film producers, they would often run cheaper yarn grade rather actual BOPP film grade resin through state-of-the-art machinery.

"But now many of these processors are cashing in on land values and moving to the countryside, where they are placing much more focus on the quality and the range of what they actually make."
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.And an Asia-Pacific commercial manager with a US plastics major added: "Even in the depths of any economic crisis, no matter how poor you become you are not going to stop wrapping your food in plastic or using synthetic polymer-made diapers.

" Ten years ago the middle classes in India earned an average of $300 a year which meant that they couldn't afford washing machines and refrigerators, never mind autos, added one of his colleagues.

"Now middle-class incomes have risen to $2,000 a year and this has put the 200m who make up the Indian middle classes over the threshold into the category of developing-world consumers of the low-end finished goods that we take for granted in the West," he said.

"Chinese growth remains strong and will be further boosted by the Expo 2010 in Shanghai."

He added: "China's government will get it right. They haven't made any major errors since the Cultural Revolution and if they do make a mistake with the economy, they are capable - unlike in a democracy - of adjusting policies extremely quickly."

Even the prospects of imminent oversupply in commodity polyolefins didn't seem to worry almost universally-upbeat senior industry executives.

"My feeling is that this trough will not be as deep as previous ones because of Asian demand," said another vice-president, this time with a leading US and European producer.

"There has been too much writing and excitement about overcapacity, but it is not as extreme as people say because of Asian demand, projects coming on-stream more slowly than expected and capacity rationalisation in the West.

"We see margin depression over the next few years, but we don't believe it will be as bad as 2002-03.

"What we've seen before during periods of oversupply in Asia is higher volumes of resin consumption. We are seeing this right now with a lot more processing capacity being added in Malaysia, Indonesia and Thailand," continued the commercial manager with the US plastics major.

"The converters are very smart. They will buy more resin and push for application development when their raw materials are cheap. In previous periods of oversupply, polyethylene (PE) demand has grown at 1.2-1.4 times GDP (gross domestic product) rather than the usual flat rate.

"This will push Asia-Pacific consumption to a new level, after which there is no going back."

The enthusiasm, the optimism, was almost overwhelming in its intensity and relentless consistency.

But was this partly because they were spinning a good story to a journalist with private discussions a little more tempered?

Or is there really no going back for Asia and for emerging markets in general, and should cynics and sceptics except that they were wrong?

Flagging-up the dangers...

Source of picture: http://www.illusionsofdander.com/2007/08/car-dealerships-and-flag-companies-may.html

By John Richardson

THE recent 22% and 18% falls in US spot ethylene and propylene prices might be a sign that this yeat's price rallies have been more the result of stronger crude and petrochemicals re-stocking and supply constraints than sustainable demand increases. 

As my colleague Nigel Davis, editor of the Insight section for ICIS news, wrote in the same article we linked to above on the C2 and C3 price retreats: "Inventories seem to have filled, with real demand growth now taking up the slack.

"The rate of that growth will very much determine producers' fortunes in the latter part of the second quarter and particularly in the second half of the year.

It is another reason to be cautious about the continued strength of the chemicals recovery if not the sustainability of the current upturn."

The big question - not just in olefins, of course, but in many commodity and also speciality downstream segments - is the continued strength of recovery in the light of the Greek debt crisis and further efforts by China to cool its economy down.

BASF CEO Jurgen Hambrecht summed up the need for caution on the release of his company's excellent first-quarter results when he said that there were risks from "the continuing financial and debt crisis, the winding down of national stimulus programmes, volatile raw materials markets, excess capacities, growing geopolitical tensions and protectionism".

He also makes the point that this quarter's results were always going to look good given that the world economy was in deep crisis in Q1 last year.

This will make quarter-on-quarter comparisons weaker as this year progresses because of the recovery that began to take hold in Asia, especially China, from the second quarter of 2009.

Dow Chemical's Greater China sales volumes could help prove the above argument. They grew by 46% in Q1 this year, but I very much doubt that this growth can be sustained as China's huge economic stimulus only started to deliver major benefits from the second quarter of last year.

My fellow blogger Paul Hodges has also repeatedly made the point, taking data from key chemicals consumption markets such as US autos and housing, that in absolute terms demand is a long way short of where it was in 2007-08.

By John Richardson

The extraordinary China import story continues, raising yet more questions about where all these volumes are going at a time when the government is trying to cool the economy down.

Does this mean that speculation continues apace because of all the money still sloshing around the economy thanks to last year's record levels of bank lending, and/or that bank lending and the economic stimulus package have created a real growth momentum that policy changes are unable to slow?

What might this mean for inflationary pressures and the danger of more drastic action by the government to control excessive growth?

Or is this data from March very much historic, reflecting the peak of the boom? As my fellow blogger Paul Hodges pointed out yesterday, a steep fall in trading on the Dalian Commodity Exchange has been accompanied by a dip in physical pricing for linear-low density polyethylene (LLDPE).

Here are some of the details of the March import surges, provided by my good contact and friend Jean Sudol of International Trader Publications Inc in New York:

"With the Chinese New Year national holiday over, China's imports soared in March, with the volume of nearly every major commodity polymer, engineering polymer and organic chemical up from February. Although China's imports generally pick up each March, the magnitude of the increases this year indicates continued strong demand for many products.

First quarter imports of a few products, however, were down sharply from last year, despite increases for most in March. Year to date, imports were down by 19%-87% for benzene, EDC, VCM, methanol and uncompounded PVC. Imports of each of these products had soared to record highs early in 2009, but volumes slowed markedly in the second half of last year and most continued relatively low into 2010. China's methanol imports were an exception, posting strong gains in both February and March of this year."

Ben van Beurden of Shell Chemicals

Source of picture: Shell.com

By John Richardson

SINGAPORE looks set to soon make some further announcements on high-value investments downstream of the new Shell Eastern Petrochemical Co (SEPC) cracker.

The complex - which comprises an 800,000 tonne/year mixed-feed cracker and a 750,000 tonne/year OMEGA process monoethylene glycol (MEG) plant - was officially opened yesterday.

SEPC already has a contract in place to supply raffinate 1 and 2, after butadiene has been extracted, to Lanxess's 100,000 tonne/year butyl rubber project, said Ben van Beurden, executive vice president of Shell Chemicals, in an exclusive interview.

SEPC is a wholly-owned subsidiary of Shell Chemicals.

Lanxess, the German speciality chemicals major, is due to hold a groundbreaking ceremony for its project this month.

The start-up date for the planned facility was advanced to Q1 2013 in January this year, after being earlier delayed by the global economic crisis.

Butadiene sales from SEPC (it has a 155,000 tonne/year capacity) were a mixture of over-the-fence and exports, van Beurden added.

And he said: "We also have surplus propylene and ethylene (from the new cracker) and we are in advanced discussions on an array of options to make use of these feedstocks. Announcements will be made in the coming months."

He was unable to disclose any details.

My colleagues at ICIS pricing estimate that Shell has 150,000 tonne/year of ethylene for export at the moment with van Beurden adding that some surplus C2s are being sold to domestic customers.

Some of the propylene produced by the cracker (450,000 tonne/year) is being sold to the Shell Singapore-based styrene monomer/propylene oxide subsidiary, Seraya Chemicals, with exports also taking place, he added.

The cracker also has the capability to produce 230,000 tonne/year of benzene.

(Shell Chemicals' mixed-feed technology gives it the ability to cracker very light to very heavy feedstock, including hydrowax. The hydrowax is being supplied from a modified hydrocracker on Bukom Island in Singapore, where the cracker is located. Shell's MEG plant and the rest of Singapore's petrochemicals industry - and where the new investments will take place - is just across the water in neighbouring Jurong Island)

Van Beurden was keen to stress that SEPC's surplus products are all being sold on long-term contracts.

But Singapore is clearly looking to use the new complex as a basis for much greater and wider value-addition: The SEPC complex was expected to lead to a new wave of high-value downstream investments in Singapore, the country's Prime Minister Lee Hsien Loong said in a speech to mark the official opening.

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Gillian Tett: Worth Listening To

Source of picture: afponline.org

By John Richardson

The excellent journalist Gillian Tett, whose book on the financial crisis - Fool's Gold is well worth a read - again hits the nail on the head in this piece in today's Financial Times.

She says that if the whole of Greece suddenly vanished into the ocean it wouldn't make that much of a difference to the global economy in terms of demand for tangible things, real things - including chemicals, of course.

But she argues that what matters is how Greece interconnnects with bond and banking markets, with signs emerging that banks across Europe are once again becoming reluctant to lend.

It is the lack of understanding of these interconnections that's perhaps creating the fear factor behind the falls stock markets in Asia and the West.

Bear Stearns was just one bank that failed, but it was its connections with the wider financial system that  ended up mattering . Its collapse also pointed to rot throughout the system

The same could apply to Greece if Portugal, Spain, Italy Ireland - and even the UK - follow.

Chemicals company CEOs were careful to point out on the release of strong Q1 results that there were lots of risks ahead, including what BASF's Jurgen Hambrecht warned was the likely withdrawal of national goverment stimulus from the second half of this year.

Peter Voser, CEO of Shell, highlighted this same risk during a press conference earlier this week to mark the offiical opening of the company's new cracker complex in Singapore.

But if the Greek crisis spreads, more not less government money might be needed to shore up developed-world economies.

Just where is that money going to come from?

David Cameron

Source picture: right up north

By John Richardson

Nothing to do with chemicals, but indulge me - this is a once-in-five-years event.

I really miss, in some ways, the pantomime politics of the 1980s and early 1990s when you had clear enemies (in my case Thatcher, as she devastated large swathes of the country as she closed down coal mines, steel mills and most of our manufacturing industry).

It was emotional, it was tribal, it could be very irrational, it was still driven by the old British class system, but each party had clear policies and so you knew where they stood.

As the parties have coalesced into the bland middle so the personalities seem to have become equally bland. This might be a lot better for running an economy, but it makes for poor entertainment.

So despite all the excitement over a hung parliament, watching the speeches of the three main candidates has been, on the whole, about as engaging as watching paint dry.

And as my wife, Connie, so eloquently said this morning:

"Gordon Brown seems very serious and intelligent and is probably a decent bloke but has no charisma.

Or as a friend puts it: "Comparing Cameron to Obama, which I've heard recently, is a bit like finding out your favourite song has ended up in a commercial for a cheap fast-food restaurant."

Lots more empty ones like these?

Source of picture: http://www.chrismartenson.com

By John Richardson

THE dramatic increase in China's money supply during 2009 - the result of an estimated 10 trillion Yuan increase in lending over the previous year - might continue to support plastics and chemicals demand growth during the rest 2010, an industry source suggested today.

"It could be that the amount of new money sloshing around in the Chinese economy makes it impossible for the government to mop up the liquidity and so the investment bubble will keep on expanding. This would be a threat for the longer-term, but might support growth during the rest of 2010."

(But clearly, the longer the bubble expands the more painful the eventual correction could be. A White Paper, China's Red Flags, by Edward Chancellor of the global investment firm GMO argues that China is displaying many of the characteristics of previous investment manias that have ended in disaster). 

Taking just polyethylene (PE) as an example, the industry source said that this might mean demand growth wouldn't fall by as much as is being predicted by CBI - the Shanghai-based commodity information service (from 30.3% in 2009 to 8.6% in 2010).

"The other argument for strong growth across all plastics resins this year is that we are now at around 16 months since the announcement of the $586bn stimulus programme in December 2008," he continued.

"We are at that point in time when a lot projects funded by the stimulus will start entering the construction phase (infrastructure, new industrial capacity).

"As soon as the stimulus programme was announced, traders and distributors in everything that can be cheaply and easily put in storage for the long-term - such as plastic resins, steel, aluminium, copper, zinc etc - started stocking-up like crazy in anticipation of construction on these projects starting.

"So now we should see some inventory draw-downs as projects start construction, but I think stocks will be replenished because there is so much liquidity in the Chinese economy, enabling the speculators to carry on speculating.

"They already have the money, via previously issued bank loans or profits made from previous trading, and so the reduction in new loans being issued doesn't matter to them."

New loan issuances went down by 43% in Q1 2009 over the same period last year, fellow blogger Paul Hodges pointed out last month. 

So does the rise in China's money supply help explain why imports continued to soar in March with low-density polyethylene (LDPE) and linear-low density polyethylene (LLDPE) hitting new records?

"The answer for the high import numbers could be partly that money is still there for speculation," continued the source.

"But it could also be because some imports that arrived in China in January and February were only shifted from bonded warehouses during March - into either local warehouses or straight to domestic end-users.

"When material is in a bonded warehouse it's like it's sitting in an airport lounge. It isn't actually recorded as having entering the country by China Customs until it enters the local supply chain."

These are, obviously, the views of only one source.

Next week the blog will test these opinions out at the Asia Petrochemical Industry Conference (APIC) in Mumbai, where the delegate number is forecast to exceed 1,200.

By John Richardson

The muddle and confusion that has characterises forecasts for Chinese chemicals demand continues - and with all this persistent uncertainty comes a great deal of nervousness about volumes in the second half of 2010.

So far so good for this year, despite a 43% drop in bank lending during Q1 2010 compared with the same period last year. You would have thought this would have taken the heat out of import volumes.

But March saw record imports for linear-low density polyethylene (LLDPE), low-density polyethylene (LDPE) and monoethylene glycol (MEG).

These strong shipments could - as we discussed last week - be the result of the lag effect of cargoes that had arrived in China earlier on, but had not been recorded by China Customs, as until last month they were sitting in bonded warehouses.

Speculative purchases of overseas cargoes surged in November-January, meaning that a substantial portion of the healthy March numbers might represent an historic period of much-greater confidence in China's near-term economic prospects.

Since November-January, local banks' reserve requirements have been raised several times and regulations on mortgages toughened-up to make property speculation a lot harder - a long with the deep cuts in bank lending.

But what if, as again we talked about last week, there is so much excess liquidity in the Chinese economy that all the steps taken to date to cool the economy down don't work?

In the short term, this might be good news for chemicals demand as asset bubbles may continue to inflate, creating similar growth numbers to those of last year.

The potential downside of when the bubble eventually bursts is obviously much greater, though, the longer asset-price inflation continues.

Something has to be done that effectively cools-down a property market where affordability is now way out of reach of most people living in the big cities. Average salaries in Shanghai are $5,000 per annum whereas a typical condo these days costs $200,000, according to fellow blogger Paul Hodges.

If the financial results of the chemicals companies continue to reveal astounding performances from China (Dow Chemical's Q1 Greater China sales were up by 46%, for example!), it's well worth asking searching questions about the potential for demand to suddenly fall-off a very high cliff.

It is also worth asking whether companies are making measurements of the quality as well as the quantity of a sale.

Sales and marketing departments don't tend to care too much where volumes are going, provided they are being shifted.

But "the once it's out of the factory gate we don't care" approach is dangerous if your job depends on making forecasts.

And forecasting remains a nightmare because of the impossibility of getting any reliable estimates of inventory levels in China.

It is not just the levels that matter, but who is holding what stocks - as the March import data confirms.

"You need to have an understanding of what's in bonded warehouses and domestic storage - plus knowledge of how high inventory levels are with different types of traders," said a Singapore-based polymers trader.

""By that I mean, how much products are in storage in any given month is with regular and established traders as opposed to the new entrants."

New entrants are more likely to indulge in the complex multi-commodity trades we have discussed before, and have greatly increased in number since China launched is big economic stimulus package, he added.

These trades can involve a sudden dumping of chemicals or plastics cargoes below cost because money has been at another point in one of these complex trades - through, for example, selling copper, zinc, aluminium or even a condo.

In other words, a deep understanding of inventories would enable exporters to begin to get a feel for real versus apparent demand.

By John Richardson

THE jury is out over whether the recent decline in US propylene prices will re-open arbitrage to Asia for polypropylene (PP).

Arbitrage for ethylene has remained strong with Dow Chemical disclosing that 20% of its US production went to Asia during Q1

US propylene contracts for May settled at a reduction of 12 cents/lb ($265/tonne, Euros209/tonne), according to a report by Houston-based colleague William Lemos on ICIS news last week.Polymer grade C3s settled at 63.50 cents/lb and chemical-grade propylene at 62 cents/lb.

The drop, the first in contract prices since October 2009 and only the second in the last 17 months, was the result of weaker demand and a decline in spot values.

But will it last?

At the same time as propylene has fallen, so has ethylene due to the easing of supply constraints. US ethylene contracts for April have slipped by 3 cents/lb ($66/tonne, Euros50/tonne).

The settlement, which leaves the monomer at 52.50 cents/lb, is the first drop in the monthly contract since July last year.

"According to producers and buyers, cracker feedstock is getting light again as ethylene values have dropped and producers are no longer able to crack any feed (both light and heavy) and make money on ethylene and co-product propylene, C4s, etc," Willliam told the blog.

"So, it seems crackers here will go back to the mom-and-pop routine of cracking NGLs (natural-gas liquids) to keep costs down and preserve their margins as long as possible.

"I heard a consultant say NGLs jumped to 85% of the feeds in April, compared with 80% in March. A caveat would be the start-up of Petrologistics in late July."

This is a propane dehydrogenation plant in Houston that will add 544,000 tonnes/year of propylene capacity to the market, added Willam.

"Crude could be another factor. If prices stay in the mid-70s/tonne it could help keep costs down and encourage heavier cracking in the months ahead."

Yesterday, though, crude jumped by around 2% on confidence over the EU Greek rescue package, in line with the huge rebounds in global stock markets.

You hardly have to be an Einstein t forecast a lot more volatility in days and weeks to come.

An industry source agreed that propylene costs would soon increase again in the States.

"US gasoline stocks are at record highs and the US is exporting lots of gasoline right now. Stocks are very high ahead of Memorial Day (May 31) which should not be the case if we are going to have a strong US driving season," he said.

"So I don't see the recent increase in US refinery operating rates and therefore the lower propylene prices being sustained. I see C3s going up again and so no arbitrage to Asia."

He added that the situation for ethylene economics was more complicated.

"True, supply constraints are easing for ethylene which has pushed the price down, but the ethane sellers are charging quite a high premium over Henry Hub right now and with gas-oil so cheap (because of very long overall middle distillate markets), this makes cracking gas-oil attractive."

By Malini Hariharan

The blog has been writing about the softening in olefin and polyolefin prices in the US. But the European market presents an interesting contrast offering arbitrage opportunities for those willing to take the risk.

Operating rate reductions have been reported at crackers in Priolo, Italy; Tarragona, Spain; Carling, France; Cologne, Germany; and in the UK at Grangemouth, writes Nel Weddle the ICIS pricing olefins editor.

However, none of these have been officially confirmed by the companies concerned. But operating issues have been confirmed at Borealis' cracker at Porvoo, Dow Chemical's No 2 cracker at Terneuzen and LyondellBasell's plant at Berre in France.

Enquiries for spot ethylene have increased but propylene remains soft as problems at derivative plants has freed up supplies.

Linda Naylor, the ICIS pricing editor for polyoelfins, reports that tight supplies have forced some PP buyers to agree to a price hike of Euro30/tonne (about $38/tonne) for May shipments.

Buyers had hoped that the tightness experienced since January would ease in May. But the situation has not eased because of operating issues at plants around the region.

Firm European prices should tempt traders to bring in product from other regions. But no deals have been reported as a weak Euro coupled with expectations of a price slide in the second half of the year has made traders reluctant to take a position in the market.

By Malini Hariharan

Ras Laffan Olefins Co (RLOC) is studying an expansion of its new cracker by using propane as a feedstock.

At a recent news conference, Mohammed Yousef Al Mulla, general manager of Qatofin, the Qatar Petroleum-Total joint venture downstream of the 1.3m tonnes/year cracker, said that while the cracker was currently running at 100% ethane a change of feedstocks was possible in the future.

"There is a study going on, maybe in the future we will use propane with mix feed of ethane, but we don't know how much it will produce. We may reach 1.6m, but for the time being we will produce 1.3m, there is a study to increase to 1.6m utilising propane in the future," he is reported to have said.

Propane is probably the only route available in the near term for RLOC to boost capacity as Qatar is running short of ethane.

Also at the news conference, Qatar's minister of energy and industry reiterated the country's commitment to petrochemicals and using propane as a feedstock.

"In this business you always try to be innovative and bring new ideas. Mix feed of propane. All these assumptions are in our agenda," he said.

And Qatar should have plenty of propane available as it is poised to become one of the world's largest producer of liquefied petroleum gas (LPG) by 2010/11 with production of around 14m tonnes.

Goodbye to all of that

Source of picture: www.gas2.org

By John Richardson in Mumbai for the Asia Petrochemical Industry Conference (APIC)

EXISTING Saudi Arabian crackers will continue to run at less than 100% until the Kingdom's oil production returns to 10m bbl/day - and that's not going happen for some considerable time, an industry source told the blog earlier this week in the build-up to APIC.

"I visited Saudi recently and discovered with oil production hovering in the region of 8m bbl/day (it was 8.26m bbl/day in April) there's not enough associated gas around to generate the ethane necessary for these established crackers to run at full rates," he added.

"Until production returns to 10m bbl/day ethane will remain tight for these crackers.

"For Saudi Arabia, maintaining the oil price at $70-80 bbl/day has bigger financial and geopolitical considerations than helping petrochemicals out. 

"I think the US is happy with $70-80 bbl/day as oil is expensive-enough to deter the wasteful consumption of earlier this decade that contributed to spiralling crude prices. The days of the gas-guzzling SUVs (and similar vehicles such as the disgusting Hummer - pictured above) need to be over for good.

"I don't think global oil demand is going to return to 2006 levels for a long while, and so this means Saudi will have to stick to its OPEC production quota - which is around 8m bbl/day - to keep crude within the $70-80 bbl/day price-range."

There might be enough propane and butane available, but as downstream plants in these existing complexes produce mainly polyethylene (PE) and mono-ethylene glycol (MEG), this is unlikely to be of much help.

As for the new wave of crackers being brought on--stream at the moment, there is, as you would expect, also not enough ethane gas to go around.

"If a new cracker has an ethylene nameplate of above 1m tonne/year it is not going to be able to produce more than a million tonnes in the foreseeable future," said a second industry.

Saudi Aramco is making strenuous efforts to boost natural-gas production, but there doesn't seem to be any great confidence among the industry sources I have spoken to that this will lead to a big easing of the ethane supply shortage.

More immediately, the feedstock issue is combining with problems in starting up and stabilising production at new plants to keep PE - and also polypropylene (PP) markets tight.

It's not the same story for MEG if China inventory levels are anything to go by as we will discuss later on.

And returning to the feedstock issue, the blog will canvass more views among the delegates gathering for APIC.

Mumbai at night

Source of picture: travelygan.wordpress.com

By John Richardson in Mumbai

POLYOLEFINS will not see a margin collapse this year due to persistently strong demand growth and continued problems with new-capacity start-ups, said numerous industry sources on the sidelines of the Asia Petrochemical Industry Conference (APIC) in Mumbai.

The belief seems to be growing that barring another catastrophic global economic crisis, the industry should be fine.

It is interesting that sources are expressing bigger fear of a demand rather than a supply-side shock. This is the result of the belief that associated gas shortages in Saudi Arabia, problems in starting-up new plants and operating-rate discipline among western producers will continue.

Booming Asian demand has created a lot of confidence. Is this misplaced?

China's apparent polyethylene (PE) consumption grew by 36.9% in 2009 over the previous year and polypropylene (PP) demand by 29.1%, according to the petrochemicals consultancy, DeWitt & Co.

"On scrutiny, much of the 2009 growth was due to replenishment of stocks after massive de-stocking at the end of 2008 and also reduced use of recycled material by converters," said Mazlan Razak, Kuala Lumpur-based consultant with DeWitt & Co.

But growth remains strong so far this year and is likely be above 10% for the whole of 2010, estimated several sources.

In India, polypropylene (PP) demand grew by 27% in 2009, according to India's Chemicals & Petrochemicals Manufacturers' Association (CPMA).

PP will grow by 12%, reaching apparent demand of 2.462m tonnes, the CPMA adds.

Overall PE growth was 7.6% in 2009 but is expected to accelerate to 10.5% this the year, the CPMA continued. This would leave India's apparent demand for all grades of the polymer at 2.879m tonnes.

A Chinese coalminer

Source: www.guardian.co.uk

Over the next week, as well as keeping track of more immediat events, we will be reviewing and analysing what was said in and around last week's Asia Petrochemical Industry Conference (APIC) in Mumbai.

One of the most-interesting stories to emerge was a clear message from close to Total Petrochemicals, the French producer, that it's forging ahead with methanol-to-olefins (MTO) see below.

Here's the story:

By Joseph Chang, John Richardson and Malini Hariharan

Total Petrochemicals aims to fully prove its methanol-to-olefins (MTO) technology this year, leading to a potential $5bn-7bn (€4bn-5.6bn) worldscale project in China in the coming years, a source close to the company said on Friday.

"The economics of our MTO technology will be very competitive. We would look to partner with anyone with access to stranded coal," said the source on the sidelines of the Asia Petrochemical Industry Conference (APIC) in Mumbai.

"This project would be very capital intensive at a cost of around $5bn-7bn," he added.
Total Petrochemicals is actively developing its MTO technology, having completed a pilot plant at Feluy in Belgium in October 2008.

The technology, jointly developed with UOP, converts methanol into light olefins (ethylene and propylene) and heavier olefins. The heavy olefins are then converted into light olefins using the UOP/Total Petrochemicals Olefins Cracking Process (OCP).

"It is a combination of UOP's process and Total's OCP technology; the olefin yield is higher than other MTO technologies," the source said.

The company plans to prove commercialisation of its technology this year, said the source.

And Total's MTO technology could provide an entry into large-scale petrochemical and plastics production in China, as foreign companies must bring more to the table compared with a decade ago, the source said.

"China has less and less need for IOCs [international oil companies] to come in and invest in projects in the conventional way. They have to bring more to the table, whether it's technology or feedstocks," said the source.

A big concern over the coal-gasification route to methanol is high water consumption. China's stranded coal reserves are in western and northern China, where water is in short supply.

Total believes it has a solution to the water issue; it is working to reduce water consumption during coal-gasification of methanol, the step before conversion of methanol to olefins, the source added.

Coal gasification plants also generate more carbon dioxide (CO2) emissions than refining, according to some estimates.

The Total process would employ carbon capture and sequestration technology to minimise CO2 emissions, the source noted.

The economics of MTO plants have been questioned because of high logistics costs.
This is because a large proportion of the polyolefins produced downstream of these facilities would have to be shipped from western or northern China, where demand is weak, to the big consumption markets in eastern and southern China.

"But a study has been done and compared to naphtha crackers it would be economic," said the source.

As part of Total's strategy of growing in Asia and the Middle East, "it would be nice to have production in China - nice, but not necessary", the source said.

Total currently supplies the growing Asian market through major production sites in Ras Laffan, Qatar, and Daesan, South Korea.

The company on 4 May inaugurated its 1.3m tonne/year joint venture Ras Laffan Olefins Cracker (LROC) in Qatar. The facility will supply its Qatofin joint-venture linear low density polyethylene (LLDPE) plant, which was inaugurated in November 2009.

Around 40% of the LLDPE would go to the Asia market, with the rest going to Europe and Africa, said the source.

Total owns 22.2% of LROC through its joint ventures Qapco and Qatofin with partner Qatar Petroleum.

By Malini Hariharan

...is not going to be easy and the Chinese government's attempts to control sky rocketing prices will not work unless there is a change in the local culture, a chemical industry executive confidently predicted at last week's Apic conference in Mumbai.

I thought the executive was referring to the Chinese love for speculating in real estate. But it turned out to be something more.

Chinese families, the executive explained, are supporting the boom as they are buying houses for their children, especially sons.

"It does not matter if the boy is still studying or does not even have a girlfriend; parents are putting aside money to buy an apartment. I have surveyed all the Chinese working in my office and found that most of them have invested in a house for their children," said the expat executive.

"You will see a lot of empty apartments in big cities; I live in a complex that has 1000 units and after 2 years only about 10% are occupied," he added.

Pic source: www.lifeofguangzhou.com

I thought it would be good to test this theory out and asked my Chinese colleagues if it was true.

Yes, they confirmed, parents will invest in a house as it improves marriage prospects. And apparently daughters are not being neglected. "It's a house for a son and a car for a daughter."

And one colleague with a 5-year old son laughed and said that she is interested in investing in an apartment. "Maybe once prices come down a little".

The froth in the Chinese real estate market is no doubt coming from speculators but there is also real demand from families keen to secure their child's future.

Recent government measures to cool the real estate price spiral may have slowed these buyers. But they will probably be back once they sense that prices have hit the bottom and fuel the start of another boom.

Source of picture: omniglobal.com

By John Richardson

A FASCINATING theme to emerge from last week's Asia Petrochemical Industry Conference (APIC) in Mumbai was a growing belief in refinery integration in Asia as a means of being able to compete with the Middle East.

Reliance Industries is planning a giant cracker complex based largely, if not entirely, on off-gases from its Jamnagar refineries. These off-gases will come from fluid catalytic crackers and delayed coking units. This is the first time an investment of this kind has ever been tried.

And, of the course, the well-established Shell Chemicals and ExxonMobil mixed-feed cracker technologies have created a highly profitable production platform in Singapore.

Shell Chemicals officially opened its new Singapore cracker two weeks ago. It can crack very light feeds all the way to the very heavy feeds.

Shell has adapted its hydrocacker, which is part of the company's existing refinery in Singapore, to supply hydrowax as a cracker feedstock.

ExxonMobil is also due to bring on-stream its second mixed-feed cracker complex in Singapore in 2011-12.

"This current new wave of Middle East projects is not as competitive as the last wave because firstly, capital costs are higher and secondly, they are cracking a higher percentage of propane and butane due to the ethane-gas shortage," said an industry source

"Propane and butane doesn't deliver as stellar margins as ethane as the local liquefied petroleum gas (LPG) price formula is linked to the naphtha price in Japan minus a 28% discount.

"I would also argue that the new Saudi propane dehydrogenation-to-polypropylene (PP) complexes face the problems of a capital-intensive technology and a technology that's difficult to operate.

"Plus conversion of propane to propylene is only 15% per pass and a lot of energy is needed to heat and cool these plants."

Ethane gas-supply is so limited in Saudi Arabia that there are very few new crackers due on-stream in the Kingdom post-2012

Liquids cracking in Saudi Arabia - or anywhere in the Gulf for that matter- makes little economic sense, according to some consultants.

Do you agree that Asia has an opportunity to work the refinery-petrochemicals integration even more to its advantage in the future?

Or have we fallen victim to a load of company flannel?

Despite the uncertainty surrounding markets prospects and the risk of another demand-led downturn, petrochemical producers are busy planning expansions and new investments.

At last week's Apic conference in Mumbai, a source close to Total Petrochemicals revealed that the company was looking to produce more petrochemicals downstream of its joint-venture refinery project in Saudi Arabia.

The 400,000 bbls/day refinery project, executed by Saudi Aramco Total Refining and Petrochemical Co (Satorp), already includes 700,000 tonnes/year of paraxylene (PX), 200,000 tonnes/year of polymer-grade propylene and 140,000 tonnes/year of benzene.
The project is progressing well and was expected to be completed in 2013.

All the PX would be exported at the beginning until derivative plants were built in Jubail, said the source.

"The propylene and benzene are destined to stay in Jubail and Satorp has been through a bidding process to find local consumers," he added.

Satrop is also expected to supply refinery feedstocks to a cracker project being developed by Saudi Aramco and Dow Chemical. The project - initially planned for Ras Tanura - is likely to be moved to Al-Jubail.

The blog had earlier reported that Total's cracker joint venture in Qatar, Ras Laffan Olefins, would also be expanding its capacity. The source clarified that the expansion would initially be based on ethane.

"The company sees a bubble of ethane availability from the Pearl gas-to-liquids (GTL) project which will be about 1m tonnes/year. They are looking to take that and expand the cracker from 1.3m tonnes/year to 1.6m tonnes/year," he said.

As the ethane would not be available to RLOC for the long term, the company was also looking at cracking propane, he added.

If the expansion is feasible, RLOC would do it by 2011-2012.

The additional ethylene would be used by Q-Chem and Qatofin to debottleneck their derivative plants, he added.

Other newly commissioned crackers are also likely to be expanded in the next couple of years.

Indian Oil Corp (IOC) plans to soon start expanding its newly commissioned cracker at Panipat by 25%.

"We will immediately take up the expansion proposal after stabilization of operations at the cracker; we have already made provision for a 25% capacity expansion," said a company executive said on the sidelines Apic.

After the expansion, the cracker would be able to produce 1.2m tones/year of ethylene and propylene. The cracker currently produces 857,000 tones/year of ethylene and about 500,000 tonnes/year of propylene.

The company would either debottleneck the exisiting deriviative plants or look at new derivatives such as low-density polyethylene or ethylene oxide.

A senior executive at ExxonMobil said in an interview with ICIS news at Apic that a study was on to expand its joint-venture cracker in Fujian, China. The Fujian complex includes a 240,000bbl/day refinery and an 800,000 tonne/year ethylene steam cracker with downstream plants.

Its downstream plants include an 800,000 tonne/year polyethylene unit, a 400,000 tonne/year polypropylene unit and a 700,000 tonne/year paraxylene unit.

And also in China, the National Development and Reform Commission (NDRC), has issued an initial permit for a joint-venture refinery and petrochemical complex between Sinopec and Kuwait Petroleum Corp (KPC) in Guangdong province, reports ICIS news.

The $9b joint-venture project - which includes a 15m tonne/year refinery, a 1m tonne/year cracker and other chemical units - was forced to relocate to Zhanjiang from the earlier planned site in Nansha, also in the province, last year because of environmental concerns.

The project in the south of Guangdong province is expected to come on stream in late 2013. A clearer picture on the completion date is possible only after the companies get the final approval.

Earlier this week, India's Reliance Industries announced it has signed an agreement with Sibur to produce butyl rubber at Jamnagar. Reliance is planning a number of petrochemical projects in India including a huge cracker and new plants for polyethylene, monoethylene glycol, purified terephthalic acid, polyester and other synthetic rubbers such as styrene butadiene rubber and polybutadiene rubber. Details are still awaited.

Is The China Party Over? Hope you've got plenty of aspirin..

Source: The Daily Telegraph

By John Richardson

Apologies to our readers for a fairly quiet week on the blog this week - my fellow blogger Malini and I have been immersed in a week of training courses for our rapidly-growing training business, ICIS training. We will be back with a roar next week.

But we cannot let the week pass without commenting on this story from ICIS news.

This blog has frequently warned about how excess liquidity in China has created the potential for inventory distortions accelerating a downward price-spiral.

And sure enough these lines from the ICIS news story indicate how worries over the European debt crisis combined with high stock levels threaten to add to the momentum of price declines.

"The polyethylene market, meanwhile, was plagued with high stocks, with Chinese petrochemical majors PetroChina and Sinopec currently holding a total of 750,000 tonnes of the material, industry sources said.

The stocks were just a quarter short of the peak of 1m tonnes in August 2008, before the financial crisis struck"

One contact ours said on the sidelines of last week's Asia Petrochemical Industry Confwerence (APIC) in Mumbai: "My management has been asking me for the last 18 months 'where are all the volumes you've been shipping to China going?. Actual demand growth surely can't be that good'. I told them to enjoy the export boom while it lasted while expecting it to be brought to an end at any timy by some big economic event beyond our control."

How right he was to warn his board to be prepared for a dramatic weakening of market conditions.

Let's hope that his board took notice.

Greed definitely not good for chemicals....

Source of picture: reelmovienews.com

By John Richardson

THE chemicals industry is once again confronting the risk of being badly damaged by the ever-more interconnected oil, other hard commodity, currency and equity markets.

As fellow blogger Paul Hodges told us last November: "Demand visibility - even without as yet a collapse in crude - is already extremely poor, making planning very difficult.

"More companies go bust in an upturn than a downturn, because of the inevitable increase in working capital. This is a major risk in 2010, given the fragile state of the financial system, and banks' unwillingness to lend."

We have now seen a mini-collapse in crude from around $87/bbl at the beginning of May to this morning's NYMEX price for July delivery of $70.33/bbl.

One of the reasons for poor visibility back in November was confusion over to what extent crude prices reflected a fundamental improvement in demand versus financial speculation that a sustained global economic recovery was just around the corner.

Now we have our answer: Money has poured out of crude and into the US dollar, indicating widespread aversion to risk and a clear indication that the rise in oil prices was, indeed, mainly built on speculation. The switch to the dollar, as the US dollar carry-trade starts unwinding, could gain very damaging momentum.

Further strengthening of the dollar would also very likely lead to greater reductions in other futures-traded commodities, such as metals - and equity markets.

John Authers of the Financial Times neatly summarises the evolution of markets to where we are today.

Problems he identifies include the rise of super-fast computers that can move hundreds of millions of dollars in milliseconds between commodities and equities, the "other people's money" syndrome" (i.e. the rise of trading by institutions), and "herding" - investment managers following the general trend because of the way they are incentivised.

This has exacerbated bull runs and has made bear markets worse.

Fear has once again overtaken the investment community as talk of a double-dip recession and deflation regain popularity.

Until or unless regulations are introduced to make commodity and financial markets less greedy, less short-term, and less driven by what Hodges describes as "irresponsible bankers", an important part of managing chemicals businesses will remain understanding how all these markets work.

By Malini Hariharan

The weakness in Asian markets is spreading with steep drops also being reported in olefin prices.

Ethylene prices dropped by $160-170/tonnes last week while propylene declined $90-110/tonne, writes my colleague Soo Hwee, ICIS pricing editor for olefins.

The poor market conditions were attributed to softness in crude oil and naphtha prices as well as lack of support from polyolefins that are also under pressure. Nervousness about Europe and the impact of credit tightening in China have also played a role.

Buyers have strategically moved to the sidelines in anticipation of further reduction in prices while cracker operators have started talking about operating rate cuts if economics continue to weaken.

What happens in the Chinese polymer market over the next few days will be crucial. As reported by the blog last week, stocks with major producers have climbed close to record levels. And export offers are still being heard.

An Indian trader said this morning that he has received offers from China for high-density polyethylene (hdPE) at $1200/tonne cfr India, $1230/tonne cfr India for linear-low density PE (lldPE) and $1430/tonne cfr India for low-density PE (ldPE).

The trader has not yet signed any deals but the offers have turned out to be useful for bargaining with his regular suppliers.

"They [traders] know they can always manipulate prices the moment something goes wrong. The events of 2008 has spoilt the market; producers could earlier take a firm stance but that does not work now," said a frustrated international producer.

The Indian polymer market is broadly following the direction set by China but price drops so far have not been as substantial.

"Arrivals [of imported cargoes] have been low and producers do not have much stocks," explained the trader.

But it could just be a matter of time before Indian prices catch up with those in China.

By John Richardson

WE will explore the following issues in a lot more detail over the coming days, assuming that the crude and financial market turmoil continues.

But for now here follows the interpretation of the crisis from a source with a major polyethylene (PE) producer.

The themes are consistent with what we have been picking up from numerous conversations at APIC and this week.

In summary, here, and as I said we will give you more details later, this crisis is financial-sector driven and doesn't reflect the strength of growth in Asia - which has been very good. The US has also enjoyed a moderate recovery.

But if confidence goes, and the financial-sector fear spreads to the wider economy, then there could be a new global recession.

But to talk about collapsing chemicals demand is far too premature. Prices have so far corrected on lower and increasingly volatile crude oil as inventories are re-adjusted.

Enough - I am getting carried away!

In his words, our source told us last night:

"The European market remains tight because of outages and operating-rate discipline. Overall cracker op rates remain at around 80% and the tight market means that price rises to compensate for higher dollar-based feedstock costs are being pushed through. For example, Dow has announced (an attempt at) a Euros70/tonne PE price rise.

"The high PE inventory levels in China could well be the result of material imported in November-December when prices were low."

By Malini Hariharan

Is this the right time to buy petrochemical stocks? Asian equity analysts are having a tough time answering this question being posed by portfolio managers across the region.

They are seeing a 'mini downcycle' emerging with a weaker second half relative to H1 2010 and potentially a weak H1 2011, explained one equity researcher. So the perfect opportunity to accumulate petrochemical stocks would be later this year as investors can then benefit from expected improvements in profitability in 2011-12 and 2013.

"Many investors did not buy petchem stocks in late 2009 and H1 2010 and they missed out the good times; so a lot of portfolio managers are starting to pay attention. They believe that they need to catch the next upturn," he added.

Pic Source: Stockmoneymarket.com

Some other investors with a shorter investment horizon are looking at shorting petrochemical stocks in anticipation of weaker stock prices later in the year, said another researcher.

But a big problem is forecasting earnings for petchem companies. Many had not anticipated the margin recovery in 2009 and visibility for the rest of this year and 2011 is still cloudy.

The ongoing downward pressure on olefins, polyolefins and many other petchem prices is closely linked to developments in crude oil and the global financial market where risk-averse investors are collecting back liquidity.

Petchem prices are likely to stabilise only after crude does. And when that will happen is still an open question.

By John Richardson

LAST week's sharp decline in polyethylene (PE) pricing in China is being partly blamed on converters who occasionally act as traders liquidating their raw-material inventories.

Trading activity by end-users can account for more than 10% of total sales activity in the Chinese market in any one week, the blog has previously been told.

A broad-based price correction on declining crude was reported by ICIS pricing for week. For example, linear low-density PE (LLDPE) was assessed $90/tonne lower at $1,160-1,230/tonne CFR China on 21 May compared with the previous Friday. High density PE film was at $1,120-1,150/tonne CFR China - down $60/tonne.

"The converters saw crude slipping and so might well have entered markets in great numbers to sell their stocks. It should be remembered that compared with conventional traders they are always in a stronger position to trade resin because they get cheaper supplies from Sinopec and the local Chinese/foreign joint-venture producers," speculated one industry source.

"I think this activity by the processors could have played an important role in the price declines. From their perspective you can understand the decision to re-sell their stocks as the economic outlook at that time was exceptionally uncertain on worries that the European debt crisis could lead to a new global economic crisis.

"Also weighing on their minds were lending restrictions in China designed to cut overall credit growth and slow the property sector down.

"It might have seemed a lot safer to sell inventories rather than produce plastic goods that nobody might want to buy. The other risk they could have been hedging against was further steep declines in crude that would have left them unable to pass-on their raw material costs to their customers."

This is obviously highly speculative, and only one opinion, but it does point to just how difficult the Chinese market is to read. More research is needed by this blog - and more opinions are more than welcome.

This theory, though, does offer support to the argument we will develop over the coming days: That the recent price declines do not necessarily reflect weaker fundamentals. The demand-growth numbers we are going to provide for Q1 point to the China boom story continuing.

And a further illustration of how PE markets could have separated from the fundamentals was what one producer described as a "growing correlation with the Dalian Commodity Exchange over the last week or so."

As we have reported before, Dalian offers a futures contract in LLDPE that at times reportedly leads physical pricing. This was the case last week when the contract fell 5%, the maximum allowed in one day's trading, which was followed by a drop in physical RMB pricing.

"At times of extreme volatility and uncertainty, the Dalian becomes the market-setter. Somebody needs to do a study into how Dalian moves with the local stock market, with crude and in turn how Dalian then actually influences the deals that are done in the real market and how the correlations have varied since the futures contract really took off early last year."

Over to the statisticians......

By Malini Hariharan

There is some good and not so good news from China. Import and production numbers for January to April are now available and they tell an interesting story.

The good news is that Chinese demand, measured in terms of imports (data from China customs) and local production (data from CBI China), has continued to grow. For the first four months of this year, low-density polyethylene (ldPE) and polypropylene (PP) demand was up 10% at 1.2m and 4.4m tonnes respectively. Linear-low density PE grew even faster at 36% to 1.9m tonnes while high density PE (hdPE) demand expanded by 28% to 2.6m tonnes.

Imports of ldPE were up 35% at 638,000 tonnes, lldPE rose by 19% to 950,000 tonnes while hdPE imports increased 9% to 1.27m tonnes.

However, PP imports dropped 7% to 1.35m tonnes as commissioning of new plants pushed up local production by 20% to around 3m tonnes.

And a closer look at the numbers for lldPE and hdPE reveal that much of the demand growth was captured by local production which grew by over 50% for both the polymers.

The start up of new plants was expected to displace imports and there is evidence that this is quickly happening. The details of imports by country are not yet available but it is likely that Middle East producers have pushed out traditional Asian suppliers.

A South Korean producer I talked to today was not enthused by the China numbers. He admitted that Iranian and other Middle East producers were edging them out from the Chinese PE market.

It is also likely that a good percentage of production and imports during January-April have ended up as inventory and are now being liquidated by traders and even converters.

Meanwhile, the turmoil in Chinese markets shows no signs of easing.

"Buying ideas are very bad; we are waiting for concrete enquiries. Chinese converters are not buying as they are worried that the European crisis will result in a fall in orders for finished goods," said the producer.

Other markets around Asia are also on the same track. My colleague Prema writes that even a 6% reduction in offers and an assurance of "price protection" has not induced South Asian polyolefin buyers to resume purchases.

Out of the investment deep-freeze?

Source: tehrandaily.wordpress.com

By John Richardson

A VERY interesting story from my colleague Bee Lin Chow on ICIS news today reports the signing of a memorandum of understanding (MOU) between Sinopec and Iran's National Petrochemical Co (NPC).

The agreement will explore joint- venture opportunities in petrochemicals and related businesses in the two countries.

China needs oil and has the political muscle and pragmatic mindset to in some cases place energy security above geopolitical concerns such as alleged nuclear proliferation and human-rights abuses.

Hence, it is now talking to Iran about petchem and associated investments.

And it has done energy deals in the past with Sudan and other countries with dubious human-rights records.

Iran, as we reported on the blog last October, is finding it increasingly difficult to get the foreign investment it needs to develop iits refining, gas-processing and petrochemicals industries. Even obtaining catalysts to run plants has reportedly become difficult.

New investment is sorely needed to shore up the economy. Value is, for example, being given away as Iran exports crude and imports gasoline with domestic pricing of the fuel heavily subsidised.

And in petrochemicals, limitations on gas extraction can cause erratic operations at existing crackers.

Lack of feedstock supply and an inability to source foreign investment and technologies have also stymied growth in petrochemicals capacity.

The scope of the MOU between Sinopec and NPC also involves joint marketing of products.

This might help Sinopec limit price disruptions in the Chinese market that might occur at times of sudden influx of Iranian petrochemical products.

Source of picture: http://www.andrewgriffithsblog.com/

By John Richardson

DOOM-MONGERS are scratching their heads as to why the global petrochemicals industry has remained in such a healthy state over the past 18 months.

Old assumptions are, as a result, being challenged. It would be a painful irony if these assumptions are changed just as a new global economic crisis creates yet another set of realities.

Right now, it is far too early to say that the end is nigh.

Sure, we have seen Asian ethylene margins take a hammering over the last couple of weeks - but all that seems to have happened is that they have gone from obscenely good to still pretty good in historic terms.

The correction was always going to take place as the full impact of Shell Chemicals in Singapore switching from a major net buyer to a net seller of ethylene was felt by a thinly-traded spot market.

The fall in oil, polyethylene (PE) and mono-ethylene glycol (MEG) prices on the escalation of the euro crisis for the week ending 21 May were obvious other factors.

Last Friday (28 May), ICIS pricing reported no further reductions in PE values, whereas ethylene had tumbled a further $160/tonne to $980-1020/tonne FOB Korea.

But the decline in ethylene came before the end-of-the-week rebound in crude to around $75/bbl.

This reaffirmed that the weakness in petrochemicals pricing is all about the euro crisis, China's economy, geopolitical tensions in Korea and their impact on confidence across many economies and industries.

To get back the original point of this article, just why therefore have the doom-mongers been proved wrong - and why do the optimists believe that this will continue to be the case?

"I think it could be because petrochemicals demand-growth in the four biggest emerging economies in Asia - China, India, Indonesia and Vietnam - is much-higher than many of us had expected," said a former doom-merchant.

"I think we need to go back and re-examine our assumptions and re-crunch our data. Maybe, for example, we are no longer looking at growth multiples of 1.2 times GDP (gross domestic product); perhaps they should be more like 1.5 times."

The other big factor we've well-documented on this blog is delays in project start-ups.

These look set to continue because of a myriad of issues including manpower, technologies and the use of inferior equipment when building costs were at their peak.

The iron operating-rate discipline of Western producers also looks likely to persist.

Highly-nervous shareholders will accept nothing less and for private equity companies such as LyondellBasell and Ineos, cash-flow remains King.

My London-based colleague Nigel Davis, editor of the Insight section of ICIS news, reports that inventory management in Europe remains exceptionally rigid down all the value chains.

"European crackers are running at an average operating rate of around 80%", added a source with a North American PE producer.

So if the euro crisis does escalate, resulting in damage to strong Asian economic fundamentals and the moderate improvement in the US, production is likely to be cut even further. This might be enough to bring markets back into balance, provided this new economic crisis isn't worse than the last one.

And if the oil price was to fall to the low $60s/bbl and stay there, a further output cut by OPEC is likely to happen in attempt to get the crude price back up to the target range of $70-80/bbl.

This would mean even less associated gas for Saudi Arabia's crackers. They are already operating at below 100% because of feedstock supply reductions resulting from the current OPEC production quotas. 

A further factor behind strong margins has been the steep drop in ethane-gas prices in the US thanks to the rise in overall gas supply.

We all knew that butadiene, and C4s in general, would become tight because most of the new cracking capacity is gas-based. What nobody had predicted was the big switch to lighter feeds in the US by existing cracker operators.

So anybody operating a liquids cracker with butadiene extraction is enjoying excellent returns.

As we said, it is still very possible that we will get through this current crisis intact with margins remaining very strong.

And with so little new capacity planned for post-2011, what are the odds against another fly-up sooner than is expected by the pessimists?