Platts Global Petrochemicals Index plunges to 2010 low on bearish demand and falling crude prices
London - May 24, 2010
Prices in the $3 trillion global petrochemicals business plunged to the lowest level this year, closing Friday, May 21, at $1,108 per metric ton (/mt) compared with the January 4 price of $1,113/mt and hovering just above the December 31 value of $1,107/mt, according to the Platts Global Petrochemical Index (PGPI). The index, a basket of the most widely-used petrochemicals prices, specifically for ethylene, propylene, benzene, toluene, paraxylene, polyethylene and polypropylene.
Market sources attributed the plunge in overall petrochemical prices to a combination of falling crude oil prices, sovereign debt crisis in Europe, weak euro, weak global stock markets, supply overhangs globally and the pullout in demand from Asian customers as they reassess their requirements.
Versus this year's high of $1,262/mt registered on April 12, the PGPI has fallen over 12%.
The most notable fall in the petrochemicals prices was registered in aromatics chain, in particular benzene. The Platts Global Benzene Index (which takes into account the weighted averages of FOB Korea, CIF Amsterdam-Rotterdam-Antwerp and FOB U.S. Gulf Coast daily benzene assessments), closed Friday at $854/mt. Compared to the year high of $1,108/mt, global benzene prices have plunged nearly 22%, the Platts data shows.
Over May 17 to May 21, Asian benzene prices lost nearly 15% of their value to settle at a six-month low by the end of last week. On May 14, the Asian benzene benchmark assessed by Platts was at $944/mt FOB Korea, and plummeted by $141.50/mt to $802.50/mt on May 21. In Europe, prices plunged from the year high of $1,286.50/mt CIF ARA on April 1 to close on May 21 at $919.75/mt CIF ARA, $6.75/mt shy of the year low on April 15. Similarly, in the U.S. prices closed last Friday at six-month low of 287 cents/gallon ($859/mt) FOB USG compared to a year high of 384.05 cents/gal on January 7.
The dive in Asian benzene prices has raised concerns of a higher risk of defaults or postponement of cargo deliveries, a market source said. Many cargoes are in traders' hands, another participant said. "I worry about contract default cargoes," a source told Platts.
But despite the gloom, some sectors are still holding on to relatively strong prices. In particular, European ethylene and polyethylene markets continued to report good demand due to limited product availabilities brought about by previous plant turnarounds and unplanned shutdowns in March and April.
The fall in the feedstock naphtha price in Europe has encouraged European petrochemical producers back into the market, supporting renewed prompt demand from steam cracker operators within the region, market sources said.
European spot steam cracker margins, which reflect incremental economics for cracker operators, have showed a notable improvement on lower naphtha values and higher ethylene spot prices. Platts spot cracker margins closed May 21 at $350.65/mt, compared to a week back when the PCM Spot was at $147.56/mt. This improvement has encouraged good utilization rates at steam crackers, market sources said.
In the derivative polyethylene market, sources said resin stocks remained low on production issues, with some claiming "better than projected" demand in some converting sectors. Recovery in some value-added segments such as pipe, textiles, and caps-and-closures boosted volumes in May, sources said.
Looking ahead, sources were very cautious about the outlook for prices in June and July. With crude oil values bucking the typical summer driving season trend and economic conditions in the western hemisphere still suspect with governments tightening their spending, global petrochemical prices have a potential for more downside, market sources said.
Sources also pointed to the infrastructure-led growth in China, which the Chinese government was trying hard to rein under control so as not to burst the property and stock market bubbles, as another concern going forward. The global petrochemicals industry would face the dreaded "double-dip" in prices and demand, if China's economy comes to a sudden stop, sources added.
Petrochemicals are used to make plastic, rubber, nylon and other materials for consumer products, packaging, manufacturing, construction, pharmaceuticals, aviation, electronics and nearly every commercial industry. The PGPI is as price reference, a gauge of sector activity, and a measure of comparison for determining the profitability of selling a crude barrel intact or refining it into products. First published by Platts in August 2007, the PGPI peaked at $1,679/mt on July 14, 2008 before plummeting to a low of $491/mt on December 5, 2008, on the heels of the global financial meltdown.
Platts Global Petrochemicals Index reflects a compilation of the daily price assessments of physical spot market ethylene, propylene, benzene, toluene, paraxylene, low density polyethylene (LDPE) and polypropylene as published by Platts and is weighted by the three regions of Asia, Europe and the United States. The PGPI is anchored by Platts’ robust and long-established price assessment methodology and is published daily in Platts Petrochemical Alert, a real-time news service, as well as in other Platts publications.
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