Weakness to persist in European olefins through Q4, rebound in short term unlikely

10-Oct-11

The European propylene and ethylene market is expected to remain slow for the rest of 2011, with no signs of a possible recovery amid the rising global economic uncertainty, as per Platts. However, it is unlikely to go through another market collapse similar to 2008. Caution will persist as the upstream energy complex increasingly turns more volatile, keeping buyers as well as sellers at bay and broadly subduing the market down to the derivatives chain. Experts do not see the market on the verge of a breakdown, but at a slow and steady pace for the rest of the year. The industry is believed to have become more disciplined with inventory management- keeping stock levels as lean as possible so they can react to any sudden changes in demand. This helps them avoid the scramble to get rid of piles of unwanted material when crisis strikes. This year, cracker run rates have been steadily reduced in the second half as demand faltered following record-high prices in the first half, owing to soaring oil prices which was mainly triggered by the political chaos in the Middle East and North Africa. Many sources believe that cracker run rates were further reduced to as low as 70% from around 80-85% during the summer as a measure to adapt to current market conditions. This should help balance the system for the rest of the year.