APIC ’15: Low crude gives impetus for changes in Asia petchems

Focus article by Nurluqman Suratman

SEOUL (ICIS)–The drop in crude oil prices will give the Asian petrochemical industry impetus to implement measures to increase its competitiveness despite the negative repercussions it may have on product prices in the region, senior industry executives said on Friday.

The drop in oil prices in the latter half of 2014 and the early part of this year had a major impact on the petrochemical industry, with tumbling naphtha prices providing a boost to margins before product prices started falling sharply, said Shri Ramanathan, the president of the Chemicals & Petrochemical Manufacturers’ Association of India (CPMA).

However, the dramatic slump in petrochemical prices in the fourth quarter had an impact on overall profitability of the market players for the year, he said.

“Asian petrochemical producers have…been impacted by the fall in crude oil prices in a positive as well as negative manner,” Ramanathan said.

“The declining product prices resulted in deferred buying across the Asian region, which affected producers adversely,” he said.

However, there are some market players who see the effects of the drop in crude oil prices as a longer-term phenomenon that could change the landscape of upstream developments into shale oil exploration and the slowing down of new ethane crackers being brought on stream, according to Tay Kin Bee, the chairman of the Singapore Chemical Industry Council.

“With the possibilities of dramatically increasing the shale oil production capacity in the US, and also the other parts of the world, potentially there could be new price trend setters in the near future, he said.

“Whatever the case may be, we have to take up the challenges and to turn the threats into opportunities,” Tay added.

Petrochemical producers have yet to fully take advantage of the drop in crude oil prices on the uncertainty over the volatile nature of energy costs, according to Boo-Lang Chen, the chairman of the Petrochemical Industry Association of Taiwan.

“Most petrochemical producers have adjusted prices downward in response to the feedstock cost reduction but lowering prices did not necessarily gain more sales orders, as users’ first priority are to consume their existing stock [destocking],” Chen said.

“Customers are hesitating to place new orders; instead they are expecting and waiting for further weakening of market prices…Everyone is wondering when will the crude oil price reach a reasonable level [but] the answer is still uncertain,” he added.

Most petrochemical producers stand to benefit from good margins as many product prices have not fallen as far as the drop in energy prices, said Ekarat Thongtawach, the chairman of the Petrochemical Industry Club, the Federation of Thai Industries.

“Furthermore, as Asian countries are in most cases energy importers, this means cheaper energy prices,” he said.

“Bear in mind that this opportunity [low crude oil prices] may not be for the long term as the nature of oil prices are cyclical and volatile, so we should capture as much opportunity from this period of possible, Thongtawach added.

The two-day APIC event ends on 8 May.

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections