Q1 saw near record margins for European petchem producers. And there was also a scramble for product, as buyers rushed to secure product ahead of feedstock price-related increases.
But this remained a supply-led market. As the chart above shows, based on APPE data, Q1 production (red triangle) was just 5.1 million tonnes. It was slightly above 2010 levels (dark red line), and the dreadful Q1 2009 figure (blue). But it was 7% below the average Q1 volume of 5.5MT between 2003-7.
The reason, of course, continued to be the lack of demand for refinery output. This meant feedstock supply was lower and cracker operating rates (OR%) remained low at 82%. And so the surge of demand did not lead to any increase in production.
But is this situation stable? The blog thinks not. It is the difference between real and perceived demand:
• Real demand is when the consumer feels confident, and has discretionary income to spend on products that contain chemicals
• Perceived demand is when buyers rush to beat price rises, whilst consumers suffer a loss of discretionary income as oil prices rise
The blog was speaking at the World Refining Association's global petrochemical conference last week, and raised this issue during the Q&A. Worryingly, it still does not seem to be widely understood. And yet it means we risk a repeat of the Q4 2008 downturn.
Real demand seems unlikely to increase in the next few months, as austerity programmes start to bite, and the summer holiday season approaches. Thus considerable destocking may well lie ahead, all down the value chain, before current inventories rebalance with real demand.