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US Olefins Price Falls Could Be Turning Point

China, Company Strategy, Economics, Olefins, Polyolefins, US
By John Richardson on 03-May-2010

Flagging-up the dangers…


Source of picture: http://www.illusionsofdander.com/2007/08/car-dealerships-and-flag-companies-may.html


By John Richardson

THE recent 22% and 18% falls in US spot ethylene and propylene prices might be a sign that this yeat’s price rallies have been more the result of stronger crude and petrochemicals re-stocking and supply constraints than sustainable demand increases. 

As my colleague Nigel Davis, editor of the Insight section for ICIS news, wrote in the same article we linked to above on the C2 and C3 price retreats: “Inventories seem to have filled, with real demand growth now taking up the slack.

“The rate of that growth will very much determine producers’ fortunes in the latter part of the second quarter and particularly in the second half of the year.

It is another reason to be cautious about the continued strength of the chemicals recovery if not the sustainability of the current upturn.”

The big question – not just in olefins, of course, but in many commodity and also speciality downstream segments – is the continued strength of recovery in the light of the Greek debt crisis and further efforts by China to cool its economy down.

BASF CEO Jurgen Hambrecht summed up the need for caution on the release of his company’s excellent first-quarter results when he said that there were risks from “the continuing financial and debt crisis, the winding down of national stimulus programmes, volatile raw materials markets, excess capacities, growing geopolitical tensions and protectionism”.

He also makes the point that this quarter’s results were always going to look good given that the world economy was in deep crisis in Q1 last year.

This will make quarter-on-quarter comparisons weaker as this year progresses because of the recovery that began to take hold in Asia, especially China, from the second quarter of 2009.

Dow Chemical’s Greater China sales volumes could help prove the above argument. They grew by 46% in Q1 this year, but I very much doubt that this growth can be sustained as China’s huge economic stimulus only started to deliver major benefits from the second quarter of last year.

My fellow blogger Paul Hodges has also repeatedly made the point, taking data from key chemicals consumption markets such as US autos and housing, that in absolute terms demand is a long way short of where it was in 2007-08.