Petrochemical prices fall to multi-year lows
By Javier Blas in London
Published: November 2 2008 23:39 | Last updated: November 2 2008 23:39
The price of petrochemicals used in making goods from toys to mobile phones and from T-shirts to pipes has tumbled to multi-year lows, in further evidence of the slump in global manufacturing activity.
The drop in petrochemicals prices goes well beyond the fall in oil prices, suggesting that demand for plastics and synthetic textiles is extremely weak as the Asia-Pacific export-oriented nations, including China, suffer from reduced overseas orders.
The cost of naphtha – the cornerstone of the petrochemical industry – fell last week to a five-year low of $284 a tonne in the far-east Asia market, down 76 per cent from July’s record high of $1,200 a tonne, according to Platts, the pricing agency.
At current levels, naphtha, a by-product of crude oil, is trading well below the cost of crude, a highly unusual phenomenon. While naphtha prices have tumbled more than 70 per cent in three months, oil prices had fallen 45 per cent – a gap that traders described as “unprecedented”.
“It is a bloodbath,” said Shahrin Ismaiyatim, head of petrochemicals at Platts. “There is a steep decline in demand in the US and Europe and that is also affecting China . . . But this is not yet the bottom of the market.”
Analysts said some of the price movements were unheard of in at least 20 years. They pointed out that the price of benzene, a petrochemical derived from naphtha used for plastics and dyes, fell last week below the cost of naphtha for the first time since the 1980s, as demand vanished.
In response, the petrochemical industry, from Sumitomo in Japan to Lyondell in the US, has reduced processing rates as producers forecast that demand will remain weak for the rest of the year and probably in the first half of next year.
The cuts during petrochemical plants’ troughs are likely to trigger a further drop in oil consumption on top of current weakness in gasoline, diesel and jet fuel demand, resulting in a further drop in energy prices, analysts said.
The cost of other petrochemicals has also slumped. For example, the price of polyvinyl chloride – a plastic popularly known as PVC – in China dropped last week to a five-year low of $635 a tonne, down from a record $1,320 a tonne in July.
The drop comes on the back of lower export demand for plastic products and reduced consumption from Chinese construction. The price of ethylene – used to manufacture containers such as shampoo and ketchup bottles – fell to $780 a tonne, down from a record of almost $2,000 a tonne in July.
Copyright The Financial Times Limited 2008
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