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Global Chemicals Operating Rates Lowest Since 1987

Economics, Naphtha & other feedstocks, Oil & Gas, Olefins, US
By John Richardson on 20-Oct-2016


By John Richardson

SOMETIMES one single chart is worth many thousands of words, which is the case with the chart. Hence today’s brief post as the chart tells you a great deal of what you need to know:

  • Based on American Chemistry Council data, and borrowed from the latest PH report, it shows that average global chemicals capacity utilisation is at its lowest level since 1987.
  • This is a very good measure of the state of the global economy, as of course the chemicals industry supplies so many of the raw materials that go into finished goods. Capacity utilisation, or operating rates, reflect demand as you don’t produce what you cannot sell.

It wasn’t supposed to be like this. The economic stimulus that has taken place since the Global Financial Crisis (GFC) was supposed to return the world economy to much-healthier growth. But this was never going to happen because stimulus policies have failed to address the challenge of ageing populations.

This economic stimulus drove-down interest rates. Combined with low feedstock costs in the US, this led the US polyethylene industry to build lots of new capacity.

If this trend of low operating rates continues how can all of this new capacity be sold without major disruption to global markets?.