Global chemical operating rates stay at 85%

Capacity Dec10.pngOctober is usually a seasonally strong month for chemical production. Factories are back from the summer holidays, and working flat out to meet orders before the Christmas and Lunar New Year breaks. So it is a bit disappointing that, as the above chart from the American Chemistry Council shows, operating rates (OR%) actually slipped slightly to 85%.

Of course, this is still a lot better than the 81.9% seen in 2009. But for the moment, it suggests that we are still in a Base Case Scenario as far as OR% are concerned. Yet crude oil prices have raced higher, to ~$90/bbl, putting them clearly in an Upside Case Scenario and suggesting demand is improving.

This highlights the importance of the comment made last week by Syngenta’s Pierpaolo Ferluga, when he noted that “the main concern at the moment is about a tight chemical market and high commodity prices“. He also added two very relevant questions – “if this is due mainly to China, or if this is going to end in 2011 into a new crisis“?

Supply constraints (OPEC quotas and plant force majeures), plus the impact of China’s lending/stimulus programmes, have clearly been key features of 2010. What happens next to chemical OR% will therefore probably tell us a lot about whether the perception of recovery that these have provided, will translate into sustainable reality.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. 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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