Volatile, but profitable, petrochems

Crude oil price swings in recent months, combined with a devalued euro, have created a volatile, but profitable, marketplace for European petrochemical producers, with European steam-crackers achieving record margins in 4Q2014, according to analysis from IHS.

Petrochemical markets are heavily impacted by changes in the crude oil price, since crude oil, and in particular, its derivative naphtha, is an essential steam-cracker feedstock for the production of gasoline and numerous chemicals. Changes in crude oil prices influence not only the overall price level for petrochemicals like olefins and aromatics, but are also a primary driver behind changes in the supply and demand picture.

‘After crude oil prices started dropping in the summer of 2014 descending to a low of approximately $46/b in January 2015, entire value chains for chemicals and polymers went into a destocking mode, and buyers began postponing their buying decisions for as long as possible, waiting for prices to bottom out,’ says Michael Smith, Vice President

of European Chemicals, at HIS Chemical. ‘Now crude oil prices are around $62/b, consumption is improving and buyers throughout the value chain are focused on restocking their inventories in a tight market. The challenge now for buyers is simply sourcing material, not negotiating on price, which is a welcomed advantage for European petrochemical producers.’

‘Polymer and other petrochemical buyers are currently facing a once in a generation supply squeeze,’ continues Matthew Thoelke, Director of Olefins at HIS Chemical. ‘For buyers, the current market scenario is a perfect storm in reverse. At IHS, we see four main factors contributing to this unusual situation – buyers have an incentive to restock, European consumption is improving, imports are at reduced levels thanks to a devalued euro, and lastly, as a result of these factors, buyers of polymers face a virtual supply nightmare.’