Polymer margins retreat

The new ICIS Weekly Margin report on polyethylene is a goldmine for those who want to track the fortunes of the petchem industry.

The recent issue contains good news and bad news for producers:

• The good news is that PE margins have improved during January for integrated producers as a result of lower feedstock costs, higher cracker co-product values and higher PE prices.
• However, non-integrated producers are not yet seeing much improvement, as they have not been able to fully pass on the ethylene contract price increase.
• And the bad news is that the recovery in margins is starting from a low base. LDPE margins were down a massive 47% in Q4, versus the same period in 2006, whilst HDPE margins were down 55%.

Overall, though, 2007 was a reasonable year. Margins were down 9% for both LDPE and HDPE versus 2006, but this was mainly because of the Q4 downturn. As the chart shows, there was a dramatic fall towards the end of the year. Both European LDPE and ethylene contributions (the blue and yellow lines) hit lows in December that were last seen in early 2002 and late 2005.

Producers will certainly be hoping that today’s massive US Fed interest rates cuts, combined with the proposed Bush tax rebates, halts the current slide in consumer confidence and helps volumes and margins to recover.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. He also serves as a Global Expert for the World Economic Forum. The aim of this blog is to share ideas about the influences that may shape the chemical industry and the global economy over the next 12 – 18 months. It looks behind today’s headlines, to understand what may happen next in critical areas such as oil prices, China and Emerging Markets, currencies, autos, housing, economic growth and the environment. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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