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The prices of polymers and petrochemicals have recovered in the past three months, following a rebound in crude oil prices. However, prices are still lower than their peak in July last year.
Petrochemicals are used to make plastic, nylon and other consumer products. They are utilised in manufacturing, construction, pharmaceuticals, aviation and electronics industries.
The recent recovery has, however, increased their demand. There were no takers for petrochemicals when their prices started falling in July-August 2014.
Manufacturers reduced inventories as production was unviable.
Deepak Chhabria, executive chairman, Finolex Cables, said, “In a falling market, to remain competitive, one has to compromise with price realisation. In a rising market, passing on burden is easier for companies having better product portfolio.” He is optimistic that demand for cables would go up in the coming months when stalled power plants would resume production and infrastructure projects would take off.
According to industry executives, many refineries around the world used the time to keep plants under maintenance. “So, when prices started recovering in January-February 2015, in line with recovery in crude oil and naphtha prices, demand emerged as pipelines in whole channel was empty,” said M P Taparia, managing director, Supreme Industries, one of the country’s largest plastic goods maker.
Most raw material prices are still 20-40 per cent lower from their peak seen a year ago. Taparia added, “Polymers’ prices are still lower than peak and demand is obviously good. However, plastic raw material makers are now saying that super cycle in polymers has begun.” In that case, raw material prices should remain elevated.
According to Platts, a research firm: “Prices in the $3-trillion-plus global petrochemicals market climbed 10 per cent month-over-month in April, posting the first double digit increase since February 2012.” Since 2013, this is the first time that global petrochemical prices have climbed for three consecutive months.
“Petrochemical prices were reacting to increasing crude and naphtha prices,” said Jim Foster, director of petrochemical analysis at Platts. “Naphtha, which is the most commonly used feedstock to produce olefins, climbed 13 per cent in April as crude was up about 16 per cent. As those feedstock prices climb, petrochemicals tend to trend higher. The tightness in supply due to maintenance turnarounds in the global ethylene markets also contributed to the strong gains.”
Since overall demand scene is good following generally low price and lower inventories, user industry is passing on the increasing cost to consumers. Finolex Cables, one of the largest consumer of copper and also a big user of PVC, has decided to increase prices.
“As copper and even PVC prices have increased, we have decided to pass on the increased cost to consumers. Our product (wires and cables) prices will go up from 15 May by 4 per cent average,” said Finolex’s Deepak Chhabria.
The outlook, however, hinges on the functioning of refineries. Platts is cautious on the outlook of polymers and petrochemicals.
Platts said, “Slower Chinese economic growth lends uncertainties to PTA, PET while Steam cracker shutdowns in Japan likely to tighten ethylene supply. Feedstock naphtha market seen bearish on refinery expansions.”
