Shelf-space to be in short supply again?
Source of picture: www.zrdata.com
ASIAN naphtha prices hit their highest level for more than a year yesterday – reaching $701/tonne CFR Japan for second-half December open-spec material on “improved market conditions”.
Earlier this week we picked up more reports of bleak demand in styrenics and fibre intermediates that countered continued optimism in equities and crude markets.
This is also usually the quiet season as petrohemical production declines on weak seasonal demand.
Is the Asian petrochemicals industry ramping up production because it thinks crude is going to get stronger and the real economy is set to improve?
Oil fell to below $77 a barrel yesterday on evidence that US motorists and businesses were cutting back on energy use, according to this Associated Press report.
Have we returned to the demand destruction which caused the economic downturn in the first place?
Despite soaring auto sales in China, there are reports that gasoline consumption is being affected by higher crude, the impact of which is being more keenly felt this year as a result of fuel-price liberalisation.
The Energy Information Administration (EIA) said in its weekly report that US oil and gas supplies grew more than expected last week, even though many oil companies have shuttered refineries as fuel consumption slumps.
US refineries had slowed production to the lowest levels since September 2008 and they were importing nearly 15% less crude than last year, the report added.
This is worying when you think of the state of the economy this time last year. Most other comparative numbers are showing improvements.
What perhaps helps to explain the 15% decline is big new refinery capacities in India and China etc putting pressure the developed-world players.
With refinery runs reduced everywhere in the world except China (where the Chinese refineries are enjoying improved profitability as a result of the fuel-price liberalisation), reduced supply could be another factor behind the rise in naphtha.
But let’s take it as read that better demand from petrochemicals is the main driver behind the increase in naphtha.
It would be a very risky business to build inventories right at this moment – given all these uncertainties and the big surge in new petrochemicals capacity.