Petchem supply/demand enters the New Normal

Chemical companies, Consumer demand, Economic growth, Financial Events, Oil markets

New Normal Jun10.pngThe blog’s major series this week has focused on the changes that seem to be taking place in markets for the petchem ‘building block’ products, particularly ethylene, propylene, benzene and paraxylene.

These changes in relative price and availability are of vital importance to a wide range of downstream chemical products. They may well prove to be secular in nature, rather than cyclical.

If so, they would fit with the blog’s belief that we are in a transition to a New Normal, as set out in its recent White Papers, rather than a quick return to the high demand levels seen in the 2003-7 Boom period. They can be summarised as follows:

• Lower growth rates for refined products such as gasoline, diesel etc could dramatically change supply/demand balances for the building block products.
• These changes may be accentuated for some products by the move to lower output from liquids-feed crackers, and higher output ex-gas feeds.
• As a result, ethylene and paraxylene may become more freely available than in the past.
• Equally, propylene and benzene may become more difficult to source.

Changes of this magnitude present great challenges to both producers and consumers. We certainly cannot be sure that they are happening, and it will take time for their full impact to become apparent – maybe 3 to 5 years. In this timeframe, temporary reversals back to the previous status quo are almost certain, making firm forecasts even more difficult.

The blog therefore suggests that prudent buyers and sellers might want to develop a Scenario-based approach, that includes further development of the analysis set out this week. This need not be a central Base Case, but could be used to provide a suitable way of testing current strategies on a “what if?” basis.

The blog will be happy to support you in this process, if this would be helpful. And, as always, it will welcome your comments, either privately or in the Comments section.

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