INSIGHT: October IPEX underscores higher costs and logistics constraints

Nigel Davis


LONDON (ICIS)–The ICIS Petrochemical Index (IPEX) update last month (the index for September) drew focus towards demand and what was coming to be seen as the main driver for prices in the still uncertain market environment.

The index was suggesting that supply and demand balances were easing with pressure taken off prices. The sometimes crazy upward march of certain commodity petrochemical and polymer prices had abated. Markets were coming back into balance. Logistics constraints were easing – or workarounds were being found; although for some products, in some parts of the world, glorious isolation meant glorious confusion, or market dynamics verging on outright panic.

Over the past month, however, a great deal has changed, with sharply rising natural gas prices focusing minds on production costs and just how the additional burden on producers might be passed on down the chain.

Certain chemicals are impacted more than others. The IPEX data for October not surprisingly show sharp month on month price increases for methanol in northeast Asia and northwest Europe. There were strong increases for polyvinyl chloride (PVC) in northeast Asia, possibly linked to higher coal costs.

Energy (gas and coal) cost increases had impacted chemicals markets and in certain cases continue to do so. The time of record peak prices, driven by coronavirus pandemic restrictions, does appear to have passed but the fallout from COVID-19 persists.

It is most apparent in restricted product flows around the world. Markets in Asia tend not to be following their own, regional supply/demand dynamics, with new capacities balanced against lower economic growth in China, for example.

In Europe, certain commodity markets continue to be isolated with the lack of imports – because of logistics constraints – working to tighten markets and, particularly, create even more anxiety. It is this anxiety and the push for security of supply that continues to underpin price inflation above expectations.

We remain in a world divided by the pandemic and clearly buyers in many markets are simply not prepared to wait for product.

The IPEX shows prices in northeast Asia rebounding in October, although that is largely due to the significant month on month increase for the above-mentioned chemicals. The NE Asia IPEX in October was 4.8% higher month on month. The two other regional indexes are well down month on month – but considerably higher year on year.

Firmer pricing sentiment is coming through numerous chemical markets based on energy cost spikes, sometimes feedstock constraints and continued demand from important end-use sectors. ICIS senior editor Heidi Finch discussed the situation for epoxy resins and titanium dioxide alongside the epoxy feedstocks, epichlorohydrin (ECH) and bisphenol A in the ICIS Think Tank podcast on Tuesday.

Supply concerns – local and global – are still prominent for players in these markets in Europe. The million-dollar question is whether there will be any fundamental change in the near term.

The answer to that question is essentially no. Used in the coatings industry, epoxy resins and titanium dioxide markets in Europe are unlikely to revert to any degree of normality until after the main coatings season in Europe, which is typically in the second quarter, due to low stocks in the chain, strong regional sourcing due to import disruption and increased cost pressures, Finch believes.

This quote, highlighted in the American Chemistry Council’s (ACC’s) latest weekly economics update on chemicals, reflects the current situation in the US: “Business is getting stronger, but the supply chain is getting worse every day”. It was made by a chemical industry respondent to ISM’s latest Manufacturing PMI (purchasing managers’ index) questions, according to ACC.

The ISM Manufacturing PMI indicates expansion in chemicals, plastics and rubber products, the trade group’s economists point out. They added the following: “Production, employment, imports and new orders grew for chemicals in October. Chemical manufacturers reported slower supplier deliveries and higher inventories. Customer inventories, however, are reported to be too low. Prices for raw materials are reported to be higher. Backlogs of orders are at historical highs though they expanded at lower rate in October. New export orders increased in October for chemical products but declined for plastic and rubber products.”

Supply chain constraints are not going to dissipate soon for players globally and, alongside increased energy costs, continue to put upward pressure on chemical prices.

Insight by Nigel Davis


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