Platts: October Petrochemical Prices Fell 9% on Economic Concerns

LONDON, Nov. 9, 2011 /PRNewswire/ -- Prices in the $3-trillion-plus global petrochemicals marketplace, fell 9% to $1,200 per metric tons (/mt) in October, according to the just-released monthly average of the Platts Global Petrochemical Index (PGPI), a benchmark basket of seven widely-used petrochemicals. This compares to a September average of $1,324/mt. and was largely attributed to concerns that economic troubles in Europe would continue to spread, according to Platts, the founder of the index and the physical market price assessment processes for each of its components.  

However, on an annual basis, the October 2011 PGPI average was 3.5% greater than the average for the same period in 2010.

On an end-of-day, end-of-month basis, the October PGPI market-on-close value was $1,439.73 on October 31, 2011, an 11.3% drop when compared to the end-of-day, end-of-month value for September 30, 2011 of $1,572.94. Month-end closing prices are often used for valuing portfolios.

Global economic concerns continued to rattle market confidence in October, causing petrochemical prices to drop at a faster pace than raw input prices of crude oil and naphtha. On a monthly average basis, each of the seven components of the PGPI was components. Toluene sported the smallest loss, with the average price down about 3.5% for the month. Meanwhile, crude oil prices in October were down less than 2% from September.

In Europe, the naphtha market struggled against a lack of downstream demand for steam cracking due to a weak plastics sector. Petrochemicals manufacturers began cutting refinery runs for light hydrocarbon feeds, including liquefied petroleum gas (LPGs) and light naphtha, as the plastics industry remained weak.

In mid-October Standard & Poor's, a sister company to Platts and a division of The McGraw-Hill Companies, downgraded Spain's credit rating citing sky-high private debt, weak economic growth and towering unemployment. Importantly, the New York-based agency also predicted Spain would miss its targets to cut the public deficit in 2011 and 2012, a grave concern for financial markets.

Also by mid-month, the International Monetary Fund (IMF) lowered its forecasts for Asian growth and warned in a report that the region faces downside risks due to worries over the eurozone debt crisis and a slowdown in the United States. In its twice-yearly Asia and Pacific Regional Economic Outlook, the International Monetary Fund warned that risks for the region are "decidedly tilted to the downside." The IMF forecasted regional economic growth of 6.3% in 2011 and 6.7% in 2012 for the Asia-Pacific, slightly less than its forecast of 6.8% and 6.9% respectively in its April report.

If a further slowdown in Asian growth manifests, analysts maintained it could further stifle demand for petrochemicals as production of everything from durable goods to disposable packaging could be trimmed accordingly.

Meanwhile, in the U.S. economy, there were some positive developments. The third-quarter real gross domestic product (GDP) – the output of good and services produced by labor and property located in the United States – increased at an annual rate of 2.5%, according to the "advance" estimate released by the U.S. Bureau of Economic Analysis. In the second quarter, real GDP increased 1.3%.

Also in the U.S., the equities markets showed marginal improvements, with the Dow Jones Industrial Average showing a monthly average increase of 3% from September to October.  

It was widely anticipated that any increase in U.S. GDP would spur increased demand for petrochemicals, as domestic producers would likely increase orders for petrochemical raw materials in advance of an expected growth in consumer demand for goods.

Meanwhile, continued global uncertainty in October led some petrochemical producers and converters to keep inventories low and to limit future orders. With some companies facing end-of-the-year ad valorem taxes in the U.S., inventory levels in some markets were expected to decline further.  

Petrochemicals are used to make plastic, rubber, nylon and other materials for consumer products, packaging, manufacturing, construction, pharmaceuticals, aviation, electronics and nearly every commercial industry.

The PGPI reflects a compilation of the daily price assessments of physical spot market ethylene, propylene, benzene, toluene, paraxylene, low-density polyethylene (LDPE) and polypropylene as published by Platts and is weighted by the three regions of Asia, Europe and the United States. It is utilized as a price reference, a gauge of sector activity, and a measure of comparison for determining the profitability of selling crude oil intact or refining it into products.

First published by Platts in August 2007, the PGPI peaked at $1,679/mt on July 14, 2008 before plummeting to a low of $491/mt on December 5, 2008, on the heels of the global financial meltdown. Published daily in Platts Petrochemical Alert, a real-time news service, and other Platts publications, the PGPI is anchored by Platts' robust and long-established price assessment methodology and the firm's 100-year history of energy price reporting. 

To access a summary for each of the seven key petrochemicals included in the PGPI, http://www.platts.com/newsfeature/2011/pgpi/index.

Platts petrochemicals experts are available for media interviews, consult Platts Media Center. For more information on petrochemicals, visit the Platts website at www.platts.com.

About Platts: Founded in 1909, Platts is a leading global provider of energy, petrochemicals and metals information and a premier source of benchmark prices for the physical and futures markets.  Platts' news, pricing, analytics, commentary and conferences help customers make better-informed trading and business decisions and help the markets operate with greater transparency and efficiency.  Customers in more than 150 countries benefit from Platts' coverage of the carbon emissions, coal, electricity, oil, natural gas, metals, nuclear power, petrochemical, and shipping markets.  A division of The McGraw-Hill Companies (NYSE: MHP), Platts is headquartered in New York with more than 700 employees in more than a dozen offices worldwide. Additional information is available at http://www.platts.com.

About The McGraw-Hill Companies: McGraw-Hill is a leading global financial information and education company that helps professionals and students succeed in the Knowledge Economy.  Leading brands include Standard & Poor's, S&P Capital IQ, S&P Indices, Platts energy and metals information services and McGraw-Hill Education.  With sales of $6.2 billion in 2010, the Corporation has approximately 21,000 employees across more than 280 offices in 40 countries.  On September 12, 2011, the Corporation announced its intention to separate into two public companies – McGraw-Hill Markets (working name), primarily focused on global capital and commodities markets and McGraw-Hill Education focused on digital learning and education services worldwide. Additional information is available at http://www.mcgraw-hill.com.

SOURCE Platts