Global petrochemical prices in freefall

In November 2008, when the S&P 500 was down 45% from its 2007 high; housing prices had dropped 20% from their 2006 peak, and futures markets signaled a 30-35% drop, petrochemical prices dropped by 38%. May's average price of $1279/tonne was down by 16% compared to May 2011.

Platts noted that on a market-on-close, last-day-of-May basis, the PGPI had fallen to $1158/tonne, on par with the lowest levels seen in 2011. The end-of-May value is down 18% from the April 30 level.

While Platts noted that the slide is in line with the seasonal, second-quarter trend, when petrochemical prices tend to decline through much of the spring and summer months, it did say the scale of this contraction hasn't been seen since 2008. It attributed the dramatic drop off to continuing concerns that petrochemical demand will fall if European Union (EU) economies worsen, a distinct possibility these days.

That uncertainty has also impacted upstream energy prices, with dated Brent crude oil prices dropping below the $100-per-barrel level on June 1, down from nearly $120/barrel on May 1. The 17% drop in oil prices had a knock-on effect in petrochemicals, impacting production costs for several petrochemicals.

Platts noted that all seven components of the PGPI were lower in May, with propylene and ethylene experiencing the largest losses (17% each). The top two plastics in terms of consumption, which are also products of ethylene and propylene, polypropylene and polyethylene, were down 9% and 8%, respectively. The global aromatics markets posted the most shallow declines, with toluene and paraxylene both falling 4%. The global benzene index was down 2%.

Regional discrepancies

Falling naphtha prices, which are dropping in response to reductions in crude oil prices, have closed the gap between regions that rely on petroleum versus natural gas feeds, but other discrepancies are emerging, according to Jim Foster, senior editor petrochemical analytics at Platts.

"We are seeing a growing disparity between Asia and the rest of the world in some markets, but not necessarily because of changes in natural gas and crude prices," Foster told PlasticsToday. "In fact, we have seen a convergence in cracker margins as naphtha prices have fallen during the past month."

Foster noted that European cracker margins have turned positive for the first time this year in Europe, thanks to falling naphtha. In the U.S., cracker margins based on ethane or a mix of ethylene and propane feedstocks, have been trending lower since the beginning of April, informing another trend, according to Foster.

"The overall outlook would be for the U.S. olefins margins to be wider because of the feedstock advantage ethane from the shale gas would provide," Foster said. "In the short-term, though, the recent drop in crude and naphtha prices has eroded some of that feedstock advantage."

Foster told PlasticsToday that Platts is seeing wider regional price disparities in the aromatics markets, namely benzene, toluene, and xylenes. "This has more to do with converting paraxylene (PX) to polyesters, and the ability for gasoline blenders to provide demand when chemical producers don't," Foster said.

Asian PX prices have dropped by 28% since early March, impacted by purified terephthalic acid (PTA) plants cutting operating rates due to negative margins. PX is a feedstock for PTA, which is then used to produce polyester. Delayed start-ups of new Chinese PTA plants, with scheduled capacity of 10.5 million tonnes/yr, further impacted the market.

Despite that, Foster said PTA producers would need PX prices to fall even further to justify starting their units, or ramping up production. Through May, the average margin for converting PX into PTA was minus $19.23/tonne, with that negative margin widening to minus $40.83/tonne for June 1-12.

We hear from PX producers, though, that they continue to have healthy margins as naphtha feedstock has retreated sharply in tandem with global crude prices. The average Asian PX-naphtha margin between June 1-12 was $468.14/tonne, which is double what PX producers need to break even, according to Foster.