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Home Markets Commodities Platts Global Petrochemical Index (PGPI) Shows Petrochemicals Prices Hit 6-Month Highs in March 2010

Platts Global Petrochemical Index (PGPI) Shows Petrochemicals Prices Hit 6-Month Highs in March 2010
added: 2010-04-14

Prices in the $2.8 trillion global petrochemicals business continued to forge ahead in March hitting new six-month highs and continuing to build on the dramatic gains seen in January when the Platts Global Petrochemical Index (PGPI) rose 10.4%. The index, a basket of the most widely-used petrochemicals prices expressed in dollars per metric ton ($/mt), advanced 0.7% in February and rose again in March to close the month at $1,233/mt, compared to $1,192/mt at the end of February, Platts reports.

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 is as price reference, a gauge of sector activity, and a measure of comparison for determining the profitability of selling a crude barrel 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.

"The PGPI price at the end of March was the highest since September 2009 and is up more than 70% from market lows of July 2008," said Shahrin Ismaiyatim, Platts global editorial director of petrochemicals. He said the rise in petrochemicals prices was largely attributed to the strengthening crude oil values which prompted petrochemical producers to push prices higher to compensate for tight and narrowing production margins. Also contributing to the rise is demand from Europe, India and Southeast Asia. "The need to increase prices was prevalent in the European manufacturing of polymers, where producers are trying very hard to restore profitability," Ismaiyatim said. Polymers are the key feedstock for plastics production.

"The price of naphtha, a derivative of crude oil and a principal feedstock for petrochemicals, increased by 7% in March, which in turn pushed up prices of most petrochemicals," said Ilana Djelal, Platts managing editor to European petrochemicals.

Despite the strength in Europe, Asian petrochemicals market saw mixed fortune in March. While Indian and Southeast Asian consumers contributed to the demand for petrochemical products, Chinese consumers were largely taking a step back as most preferred to rely on their existing pre-Chinese Lunar New year inventories.

"In Asia, manufacturers of aromatics took a beating in March," said Quintella Koh, Platts managing editor for Asian petrochemicals, pointing to the rising input costs. "Production margins are barely at break-even points." Aromatics are key feedstocks for products such as fibers for the textiles industries and styrenics for the packaging industries.

In the United States, the margin situation is similar and demand is rising. "The uptrend in petrochemical prices will likely continue, given that U.S. economic indicators like non-farm payrolls and consumer confidence rose in March and there are signs of some manufacturing gains with the traditional summer consumer demand season just ahead," said Ihsan Rahim, Platts managing editor for Americas petrochemicals.

Market fundamentals suggest the price rise could continue worldwide over the medium term. A combination of low inventories and higher-than-expected demand in some petrochemical sectors have seen many market participants left short of products, which is conducive to future price hikes. A key demand driver: automobile sales.

"Asian petrochemical industry players acknowledge automobile production as the heartbeat of economic health in the Northeast Asian and Southeast Asian economies," Koh said. The automobile industry is one of the largest consumers of petrochemical products--for application in such things as dashboards, tires, engine parts, bumpers, seats and cushions.

The latest figures from the China Association of Automobile Manufacturers show that auto sales rose 56% in March 2010 from year-ago levels to a record 1.74 million units. In India, the Society of Indian Automobile Manufacturers says the country's March car sales were 1.53 million units, up 25% from the previous year's 1.22 million.

Petrochemicals prices also can be viewed as a leading indicator of general economic activities. For example, the trend in industrial new orders, an indication of the manufacturing activities of a country, often shows a strong correlation to the prices of the feedstock petrochemicals. Average PGPI prices from March-August 2009 showed a rise in value from $682/mt to $1,013/mt. In the European Union's 27 states, a corresponding rise in industrial new orders was recorded a month later, from 85.39 points in April to 93.73 points in September. Similarly, a dip in the September's PGPI corresponded with a fall in EU27 industrial new orders for October.

Source: PR Newswire

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