3 issues, and an overview, at EPCA

D'turn 12Oct12.pngThis year’s European Petrochemical Association in Berlin was notable for its realism. The blog gave an interview to ICIS news which was headlined ‘Major recession ahead, warns leading consultant’. This overview seemed to capture the overall mood of the event.

3 key issues were also the focus of intense discussion:

US shale gas. Will all these projects go ahead? And if they do, what will be the impact on global olefin markets? The blog’s view is that demand forecasts will be key – China is also expanding rapidly, and it is not clear that all the new capacity will be able to find a home, even though its feedstock will be cheap.

Benzene and aromatics availability. The Downturn Monitor has been flagging up a new development in aromatics markets in recent weeks. Benzene (green line) has gone very tight, even though derivative demand is poor. This is because changes in refining are reducing feedstock availability. Security of supply is now a key issue for the future.

Market volatility and demand uncertainty. Companies are finding it desperately difficult to forecast crude oil prices, now these are no longer based on the fundamentals of supply and demand. Consumers often set their prices for 6 or even 12 months ahead, and cannot cope with 25%+ swings, up and down. Equally, the changes in inventory caused by this volatility mean there is very little visibility into real levels of demand.

Sadly, there are no easy answers to these questions. They are part of the VUCA world in which we are all now living, as we discuss in ‘Boom, Gloom and the New Normal’.

The chart shows benchmark price movements since the IeC Downturn Monitor’s 29 April 2011 launch, with latest ICIS pricing comments below:
PTA China, red, down 18%. “Despite large scale production cutbacks in China and stronger PTA futures, Chinese domestic PTA market showed weakness this week”
HDPE USA export, purple, down 12%. “US prices are not working in many parts of the globe”
Naphtha Europe, brown, down 12%. “The market remains tight as a result of refinery turnarounds, but an oversupply is still expected to build later this month”
Brent crude oil, blue, down 9%
Benzene NWE, green, down 2%. “Players remained focused on the availability issues that have plagued the market this year”
S&P 500 Index (pink) up 5%

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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