Petrochemicals prices have risen sharply since July following high crude oil prices from which all petrochemicals are derived and high naphtha prices which is important feed stock. Crude oil is almost up 20% during the period.
Many oil refineries shut production for a number of reasons in the past few months. Refinery and pipeline problems in the Midwest and California, tropical stroms moving from the Gulf of Mexico and refiners selling off inventories to avoid a surplus when they switch to processing winter blends of fuel in the coming month, pushed prices higher, said analysis by CapitaLine.
Petrochemicals index of Platts, which is a McGraw hills division has risen 24.25% from $1,099 per tonne in the beginning of July to $1,366 per ton as of now. Index represents average global price of petrochemicals. Indian consumers are worst hit due to fallin value of rupee against dollar making the raw material for various plastics, textiles and feed stock costlier.
India is a net importer of the by-product and domestic prices are set by tracking international price levels with a one month lag effect. Most products prices have gone up between 10-15% in last two months in Indian market.
Prices for benzene, which is used as an aromatic chemical have been rising significantly on the back of high naphtha prices. Production of benzene has been declining significantly from peaks on a month-on-month (m-o-m) basis.
Explaining reasons for production cuts globally which has resulted in turn in spike in prices, Ihsan Rahim, senior managing editor, Asia, Platts Petrochemicals & Soft Commodities said that, “a trend is clearly emerging that consumers' vision is longer and they look beyond what producers are looking and hence fearing several concerns that are emerging they cut their consumptions and producers have to just follow them by cutting production later- producers are finding difficult to judge changing consumers preferences.”
Parazilene and naphtha are major gainers globally. Paraxylene up 20% on two months while Naphtha was up nearly 30% and trading at $1000 per ton.
Ishan Rahim of Platts explains that, “butadiene is in demand for producing tyres whose demand is still high and hence the prices- paraxylene is another commodity which prices are rising faster and independently of other petrochemicals- reason- cotton is becoming costlier and as its substitute synthetic textile is in demand which is made using PTA for which paraxylene is key raw material.
Naphtha prices are rising and may continue to rise till alternative gas is available- which is ethane and efforts are on in US to increase production of that.. heavy naphtha is required for producing paraxylene and hence naphtha prices are also rising
fast.“
In indian market according to CapitaLine data, Benzene prices are higher by 27% on y-o-y at Rs 73,817 per tonne in September but since last few months prices are lower due to slow capacity additions in major segments like Linear alkyl-benzene, caprolactam and phenol which together accounted for 72% of total domestic demand for benzene in 2011. Globally benzene prices went up 12.7% in 2 months.
For Linear alkyl-benzene (LAB), a vital ingredient in detergents, liquid detergents, pesticides and paint industry has also strengthened.
Healthy demand in the Indian markets also boosted prices. Rainy season, which leaves the industry parched for buyers, was not a detterent this year as the onset of monsoon was delayed in India, thus boosting prices.
Smaller plastic processors have been crying foul due to steep hike in prices but industry leaders are better placed due to halt over the market.
M. P. Taparia –Managing Director, Supreme Industries, said that, “while in plastic furniture segment we have cut production because we were not able to pass on full cost increase though we have not seen demand contraction at existing price but in other segments that is plastic pipes and industrial components we been able to pass on rising costs and also not seen demand contraction.”
What is the road ahead? Ishan said,“this seasonal strong movement in petrochemical prices which in my personal view, seemed to be over-bought. Prices are too high for comfort and that demand for end products to stock the Christmas shelves in the Western economies may not manifest itself.”
