Prices fall two-thirds in three months, expected to dip further.
The chemicals and plastic raw materials market is yet to see a bottom as international prices have fallen nearly two-thirds and the downside seems farther down. Compared to the July-end prices of chemicals and polymers, it quoted 60-70 per cent lower in Asia and a post-Olympic recovery in demand has not happened. This has also resulted in many Asian refineries running at an average of about 80 per cent capacities.
Situation in India is no better. A demand slowdown and credit squeeze has lead to lower off-take from refineries even as prices have fallen dramatically in last three months.
As crude oil prices have fallen from $147 per barrel in mid-July to $60 at present, all chemicals, solvents, polymers and petrochemicals have also fallen by that extent. “When polymer (raw material for producing plastic) prices were at their peak, many small and medium units have cut production (or have closed down) and hence when prices have fallen, the demand has also fallen. The perception of a further slowdown has resulted in lower inventories or running production capacities with minimum stocks,” said Nikunj Dhanuka, MD, IG Petro.
His company produces pthelic enhyderide, a raw material for plasticiser for DoP. The price of the pthelic enhyderide has come down from
Rs 70 to Rs 40 per kg in domestic market in just three months. DoP is used for producing PVC pipes and cables.
Ortho zylene, another chemical is quoted at $500 per tonne from $155 three months ago. Some more widely used raw material for producing polymers and chemicals like ethylene, propylene and benzene have also fallen very sharply during the period.
Indian refineries are also facing similar problems. Some of them thrive on exports and are facing slow deep down in demand of refined products as there are fears of further fall in prices. Lower utilisation of refining capacities and cases shutting down plants in the name of maintenance are frequent. Dhanuks has converted his EoU into a unit can sale goods in domestic area (DTA). Another producer of the material has closed one of its plants following market condition.
According to Citigroup, most refineries in Asia are running at average 80 per cent of their capacities and further production cuts are expected.
It says Asian chemical prices plunged $400-800 per tonne since end-August due to limited buying interest from plastics converters expecting lower input costs (with a sharp drop in oil price). Weakness was compounded by slowing export orders and traders liquidating inventory on tighter credit conditions.
