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Inventory/sales ratios at 20-year lows, petrochemical market continues to gain steam

The ratio of chemical inventories to sales is at its lowest level in 20 years, after wholesale chemical sales rose strongly and inventories also increased last week, with downstream sales gains in polyvinyl chloride (PVC) and polypropylene (PP). In its weekly assessment of the economy, including the petrochemical market, the American Chemistry Council (ACC) reported that domestic PVC output rose to 1.087 billion lb in January, with production up 17.6% and sales and captive use rising 23.3% year over year.


Producer vinyl inventories were stable at 401 million lb. Domestic PP production rose to 1.34 billion lb in December. While production was off 5.0% and sales and captive use were down 5.4% on a year-over-year basis, capacity utilization rose to 81%.

According to the Assn. of American Railroads (AAR) for the week ending March 6, railcar loadings of polymers and basic chemicals fell by 2512 to 28,795 railcars, but compared to the same week last year, loadings were actually up 18.4%. The ACC reports that loadings have been on the rise for seven of the last 13 weeks. The 13-week moving average of railcar loadings indicates continued improving activity, with levels up 13.6% year over year.

At 18.3:1, the ratio of oil prices to natural gas prices improved from 16.9:1 a week ago. One year ago, the ratio was 12.2:1. As a general rule, the ACC says that when the ratio is above a band between 6 and 7, the competitiveness of Gulf Coast-based petrochemicals and derivatives vis-à-vis other major producing regions is enhanced. In the US, 70% of ethylene is derived from natural gas liquids while in Western Europe, 70% is derived from naphtha, gas oil, and other light distillate oil-based products.

Kathy Hall, executive editor of the daily U.S. petrochemical industry newsletter, the PetroChem Wire (PCW), reported another driving force in the market last week: extreme volatility in key monomer, ethylene. The price of spot ethylene in the U.S. for March jumped $0.10/lb last Tuesday, with March ethylene trading at $0.70/lb, up from $0.60/lb on Monday. Overall, March ethylene gained $0.14 in one week, and $0.18 in one month. 

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