Platts: Petrochemical Prices Drop to New 2010 Low

LONDON, July 13 /PRNewswire/ -- Platts -- Prices in the $3 trillion global petrochemicals business declined for the third consecutive month in June, causing the Platts Global Petrochemical Index (PGPI), a basket of petrochemicals prices expressed in dollars per metric ton ($/mt), to drop to $1,051/mt on June 30, the lowest level of 2010.  The Platts PGPI analysis report is published early each month by Platts, a leading global energy and metals information provider.

Industry sources tell Platts the recent decline in petrochemicals prices can be traced to several factors, including a slow down in demand and over-production that occurred as manufacturers sought to capitalize on the run up in prices since January 2009.

"The drop off in the prices of these industrial raw materials is beginning to raise eyebrows in the analyst community, with many questioning if they're suggestive of a double dip for the economy," says Shahrin Ismaiyatim, Platts global editorial director of petrochemicals.  "Some analysts look at indices like PGPI to predict economic trends and for the last couple months it looks like 'petchem' feedstock price declines and economic slowdown have come hand in hand."

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.  

Between November 2009 and April 2010, the index continually increased, hitting a high of $1,262/mt on April 12.  Since then, price movement has been downward with the average daily price of PGPI dropping 10.1% to $1,029/mt in June from $1,144/mt in May.

"Volatility defines this market and June was the most volatile month for petrochemical prices in 2010, with swings in the PGPI varying from a $15.72/mt overnight drop on June 6, to a $4.96/mt gain on June 14," said Ihsan Rahim, Platts managing editor for Americas petrochemicals. By comparison, the average daily price movement during the January-through-June period was $0.70/mt. The 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.

In Asia, market players struggled to cope with an influx of new supply, which put severe pressure on production margins in aromatics, namely benzene, toluene, and paraxylene, which are used to make plastic packaging, casings for electronic goods, PET bottles, polyester fibers, and are also used as a blend stock for gasoline. China, in particular, continues to grapple with high stockpiles of key petrochemicals, which suggests petrochemicals consumer outlook from traditional key importing regions -- the United States and the Eurozone -- is weak.

Industry sources report that East China's toluene inventory, which hit an eye-popping 210,000 mt back in early May, continues at levels beyond acceptable comfort levels. China's mainland eastern provinces typically consume an average of 60,000-70,000 mt of toluene each month.  Toluene goes into the making of dyes and pigments, which feature heavily in the Chinese construction and furniture manufacturing industries.

"Producers in both northeast and southeast Asia appear to be developing new survival techniques this year," said Quintella Koh, Platts managing editor of petrochemicals, Asia. "The shaky economic outlook and over-investment in many petrochemical industries mean that flexible operation controls and new pricing techniques are two core areas that producers are focused on."

In Europe, an inflow of cheaper imports and the weaker prices in the world's energy complex kept benzene prices under pressure during June.  And the availability of deep sea cargoes from the Middle East, the United States, and Latin America pushed down prices for olefins, such as ethylene and propylene. Olefins, a basic building block for the petrochemicals industry, are largely produced from naphtha via steam cracking and are key feedstock for the plastics industry.  

Despite the downward price trend in olefins and benzene prices, profitability for European steam cracker operators remained high in June at a monthly average of $240/mt or euro 197/mt. These levels provided incentive for high utilization rates at steam crackers. European derivative polymer demand continued to surpass expectations, with most plastic application segments such as food and beverage, healthcare, automotive, and textiles showing incremental and consistent improvement.

The PGPI serves as a price reference, a gauge of sector activity, and a measure of comparison for determining the profitability of selling a barrel of crude intact or refining it into products.  It is based on Platts' long-established price assessment methodology and published daily in Platts Petrochemical Alert, a real-time news service, as well as in other Platts publications.  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.

For more information on petrochemicals, visit the Platts website at www.platts.com.  For Chinese-language information on petrochemicals and the energy and metals markets, visit http://www.platts.cn/. Platts petrochemicals experts are available for media interviews, consult Platts Media Center.

About Platts: Platts, a division of The McGraw-Hill Companies (NYSE: MHP), is a leading global provider of energy and commodities information. With a century of business experience, Platts serves customers across more than 150 countries. An independent provider, Platts serves the oil, natural gas, electricity, emissions, nuclear power, coal, petrochemical, shipping, and metals markets from 17 offices worldwide. Platts' real-time news, pricing, analytical services and conferences help markets operate with transparency and efficiency. Traders, risk managers, analysts, and industry leaders depend upon Platts to help them make better trading and investment decisions. Additional information is available at http://www.platts.com.

About The McGraw-Hill Companies:

Founded in 1888, The McGraw-Hill Companies (NYSE: MHP) is a global information and education company providing knowledge, insights and analysis in the financial, education and business information sectors through leading brands including Standard & Poor's, McGraw-Hill Education, Platts, and J.D. Power and Associates. The Corporation has more than 280 offices in 40 countries. Sales in 2009 were $5.95 billion. Additional information is available at http://www.mcgraw-hill.com/.  

SOURCE Platts

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