The chart above, from Paul Ray's excellent 'ICIS Weekly Margin Report', clearly shows the level of pain currently being suffered by naphtha-based cracker operators. Based on European pricing, it also demonstrates the great difference between today's recession versus the 'dip' of 2002/3:
• Margins based on contract prices fell to €151/t in January
• They then fell further to €117/t in February
By comparison, they averaged €239/t in 2002, and were back to €272/t in 2003. And today's margins are, of course, being 'supported' by the significant number of crackers that have been offline in recent months.
The blog's worry is that it is hard to be very optimistic over the near-term outlook for margins. Demand will hopefully improve at some point, even if this is just due to destocking coming to an end. But equally, one has to expect that the offline crackers will restart at some point. This will not only help to balance out any increase in ethylene demand, but may also put further pressure on co-product margins for propylene and benzene.