October petrochemical prices fell 9% on economic concerns

Prices in the US$3 trillion plus global petrochemicals marketplace fell 9% to US$1200/ton in October, according to the Platts Global Petrochemical Index (PGPI). On an end-of-day, end-of-month basis, the October PGPI market-on-close value was US$1439.73 on 31 October, 2011, an 11.3% drop when compared to the end-of-day, end-of-month value for September 30, 2011 of US$1572.94. 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. 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 downgraded Spain's credit rating citing sky-high private debt, weak economic growth and towering unemployment, and 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 IMF 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.
The US economy, however, showed some positive developments. Q3 real gross domestic product (GDP) - the output of goods 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. Real GDP increased 1.3% in Q2. Also in the US, 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 US 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 US, 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 US. The October figures compare to a September average of US$1324/mt and were largely attributed to concerns that economic troubles in Europe would continue to spread. However, on an annual basis, the October 2011 PGPI average was 3.5% greater than the average for the same period in 2010.
The global economy is on the verge of a new and deeper jobs recession that may ignite social unrest, as per the International Labour Organization (ILO). It will take at least five years for employment in advanced economies to return to pre-crisis levels. The ILO also noted that in 45 of the 118 countries it examined, the risk of social unrest was rising. It said approximately 80 million net new jobs would be needed over the next two years to get back to pre-crisis employment levels. The Organisation for Economic Co-operation and Development said the rescue plan announced by EU leaders on 26 October had been an important first step, but the measures must be implemented "promptly and forcefully". OECD has predicted a sharp slowdown in growth in the eurozone and warned that some countries in the 17-nation bloc were likely to face negative growth. In its latest projections for G20 economies, the OECD forecast growth in the eurozone of 1.6% this year, slowing to 0.3% next year.
Global economic slowdown and uncertainty in the financial markets is having an impact on the Indian economy with all the lead indicators of growth showing a downward trend. Index of Industrial Production (IIP) grew at 4% in August 2011 which is at one of the lowest levels since April 2010. As per Knight Frank, the manufacturing Purchasing Managers Index (PMI) is at its two year low of 50.4 for the month of September 2011 raising serious questions about the growth momentum of the economy. PMI is a survey based compilation by HSBC of manufacturing sentiment and is considered a good indicator of factory output. An index level above 50 indicates expansion, and higher the index above that threshold greater the growth. The impact of slowdown is already being felt on the real estate market with residential segment witnessing sluggish demand across all the major cities. Apart from demand slowdown, impact of rising cost of funds, increasing construction cost and delays in government approvals is worsening the already dismal condition of the sector.