Petrochem margins to weaken despite strong demand

12-Apr-07

All time high prices for feedstocks and petrochemicals last year have led to a global rush for capacity expansion, and this is expected to put pressure on margins. Global petrochemical producers will be plagued by problem of diminishing margins and overcapacity very shortly, despite expected strong demand growth in Asia from several sectors like for consumer goods, automotive, computers and electronics, as per a global commodity news agency Platts. Markets have seen a marginal softening in demand from core consumption centres like China, but very strong medium to long-term demand is being witnessed in other Asian economies with a burgeoning middle class population. However, as more crackers come on stream globally, producer margins continue to diminish, as the increased capacity has caused prices to drop. The petrochemical business which is cyclical is now moving from a position of global tightness to a position of self-sufficiency in Asia, or even oversupply. This is because a number of plants in Taiwan, Malaysia, South Korea, India and Singapore have tried to capture this high margin from butadiene and ethylene in the last year. And going forward into 2008, 2009 and 2010, these margins will drift into oversupply. However, proximity to growing markets such as China, Thailand and Indonesia will ensure that oil giants Shell and Exxon Mobil will see reasonable margins.