Our annual Asian conference in Singapore (co-organised as always with ICIS) was very interesting this week.
We had some fascinating presentations from major companies including Reliance and Thai Oil, and China insights from CICCC and Chemease.
Shell’s GM for strategy, Alexander Farina, discussed changes in cost competitiveness between benzene (grey column) and propylene (red) over the past 15 years. As his chart above shows:
• In 1995-2001, benzene was ~75% of propylene’s price (red line)
• From 2002-7, it rose to ~100% of propylene’s price
• Since 2008, it has fallen back to ~80% again
As Farina noted “a 5 year cost advantage (for benzene) slowly slipped away about 10 years ago“. But more recently, benzene has regained its competitive edge. This “has strengthened the cost position of polystyrene (PS) against polypropylene (PP)”.
He noted that “substitution of PS by PP seems to have reached a plateau“. Regionally, “reports from Asia confirm that PS substitution is no longer an issue“, although he saw “on-going challenges for PS in N America and Europe, where perhaps 1/3rd of the market could be vulnerable to PP”.
In addition, though, Farina highlighted the impact of shifting regional prices for ethylene. The recent fall in US ethane prices, for example, has enabled “US styrene producers to revitalise some underused capacity and export significant tonnages to Europe“.
Farina’s analysis highlights the growing complexity of chemical markets.
It is no longer enough to simply focus on the vertical silos in which we operated during the BabyBoomer-led SuperCycle. One now has also to track changes in feedstock prices, and be aware of the potential for inter-polymer as well as inter-regional competition.
This is all part of the transition to the New Normal.