By Nigel Davis
LONDON (ICIS)--Are higher petrochemical prices at the turn of the year anything to get excited about?
The January IPEX, the ICIS petrochemical index based on a basket of regional contract and spot prices for 12 chemicals published on Wednesday, was up 2.6% from the prior month reaching a nine-month high.
The strength of the increase in the global index is somewhat surprising given generally still weak chemicals demand and the deep uncertainty that persists across the sector.
Yet it reflects the fact that petrochemical prices trended upwards in the last two months of 2013 running against the normal seasonal trend of a typical calendar year-end industry slowdown.
The index is based on prices in the previous month.
Unpicking just some of the market sentiment in December it is difficult to see where the price buoyancy is coming from.
Benzene prices in Europe in December were much higher and they were higher too in Asia and the US. But market sentiment was not great.
“There are just too many supply-demand factors affecting how the price will be. I am actually lost,” a Singapore-based trader said in December commenting on the outlook for benzene in 2014.
Asia benzene prices were said by some market participants to be too high. China’s import window had been shut since mid-month.
A lot of new aromatics capacity is due on-stream across Asia in 2014. Paraxylene capacity increases are expected to outstrip demand which is driven by the consumption downstream of polyester.
And achieving agreement on the Asia paraxylene contract price has been difficult because of opposing views on the market outlook and on supply demand balances. The Asia Contract Price (ACP) is used as a marker for the paraxylene price in the US and in Europe.
Benzene prices in the US are relatively strong, underpinned by a fire at a refinery in Mississippi in November, and helping to support European benzene prices at the start of 2014, it was reported on Wednesday. Demand for benzene derivatives in Europe remains relatively weak, however.
Globally, the market direction is unclear with any tightness driven by supply rather than demand. And that lack of clarity has had market analysts scratching their heads over the holidays.
Higher prices and improving leading indicators towards the end of 2013 were seen by some as a reflection of pre-buying ahead of the lunar new year holidays at the end of January rather than any substantive increases in volume demand.
Rising oil prices were also seen as a contributory factor with buyers looking to pre-empt price increases in petrochemicals downstream from crude.
“We remain of the view that inventory management has become the primary determinant of incremental demand movements,” Paul Satchell of Canaccord Genuity, said in December commenting on an upturn in the bank’s chemicals Volume Proxy Index.
“That in turn suggests that underlying, ‘real’ demand remains fragile at this stage, in spite of apparent improvements in macro indicators.” he said.
The global IPEX increase in January shows a sector gaining some traction following a difficult 2013 and also a recovery from price reversals earlier in the year. It does not reflect a sustainable upturn.