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Confidence And Petrochemicals

Business, Company Strategy, Economics, Europe, US
By John Richardson on 08-Apr-2012

By John Richardson

CONFIDENCE is a strange thing. It can be derived from solid reasons for optimism over the future or from temporary factors that can rapidly disappear.

And what is the value of publicly-expressed confidence? Is it often politically motivated rather than being based on the genuine belief that the future holds tremendous promise?

Right now in the petrochemicals industry, it is easy to make the case that the recovery in sales volumes in Europe and the US during Q1 mainly represented stock-building by buyers.

Inventories were exceptionally low down many value chains in December 2011, when it looked as if the Eurozone was about to collapse.

Once the immediate danger had been averted, therefore, some restocking was inevitable.

This was given further impetus by rising oil prices. Petrochemicals end-users “bought forward” in order to hedge against crude and petrochemical prices going even higher.

The Eurozone crisis was put on hold rather than resolved in December last year. This has become clear over recent weeks as the focus has switched to the next economy facing a potential sovereign debt default – Spain.

Will the direction of crude remain as clear in the second quarter? Quite possibly not, given the evidence of demand destruction caused by expensive oil and the determination of Saudi Arabia to lower prices.

Price increases have been essential for naphtha cracker operators as they attempt to repair squeezed margins. The increases have been made possible by deep operating-rate cuts in Europe during Q4, and maintenance work and outages in both Europe and the US in the first quarter.