Global petrochemical index in February maintained dramatic January gain

Prices in the $2.8 trillion global petrochemicals business continued their advance in February, holding on to the dramatic gains seen in January when the Platts Global Petrochemical Index (PGPI), a basket of petrochemicals prices expressed in dollars per metric ton ($/mt), rose 10.4 percent. In January, this leading indicator was at the highest levels since October 2008 and nearly 150 percent higher than the end-2008 low. The PGPI edged forward 0.7 percent in February, supported by last minute inventory-stocking demand ahead of the Chinese Lunar New Year holiday and plant production interruptions in Europe.

The PGPI, created in August 2007 by Platts, a leading global energy and metals information provider, averaged $1,189/mt in February vs. $1,181/mt in January. For February specifically, the PGPI fell by 1.2 percent from the high of $1,206/mt recorded on February 3 to close the month at $1,192/mt. In February 2009, the index was 43 percent lower at $678.51/mt.

Petrochemicals are used to make plastic, rubber, nylon and other materials for the consumer products, packaging, manufacturing, construction, pharmaceuticals, aviation, electronics and nearly every commercial industry. The PGPI reflects the price movement of a diverse group of the most commonly used petrochemicals and provides the industry with a 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. The PGPI also has value as an indicator of economic performance.

"The slight rise in the index was spurred by Chinese petrochemical consumers stocking up on their final inventories before the country shut down for the Chinese Lunar New Year holidays which stretched from February 13 to February 19," said Shahrin Ismaiyatim, Platts global editorial director of petrochemicals. Meanwhile, production issues at several Europe petrochemical facilities helped provide a floor under the index.

"In particular, prices of benzene, toluene and paraxylene - collectively known as aromatics and used as feedstocks to make consumer products such as plastic packaging, casings for electronic goods, blendstock for gasoline, PET bottles or polyester fibers - showed strong resilience in February," Ismaiyatim said.

Benzene prices, according to the Platts Global Benzene Index (PGBI), one component of the PGPI, climbed to a high of $1,029/mt on February 18, up from $990/mt at the start of the month.

"It's not because demand was particularly strong, it's because the molecules weren't there," said Ihsan Rahim, Platts managing editor for petrochemicals, Americas. The price rise was driven by a supply shortage caused by production issues at Shell's facility at Moerdjik in the Netherlands, which forced traders to scramble into the spot market to secure benzene, Rahim explained. As a result, benzene prices in the United States and Asian markets moved higher in tandem, supporting a rise in the PGPI index. Platts benzene index eventually fell back to $966/mt at the close of February. By the time the marketplace realized demand was not the driver of the price rise, the benzene index fell in line with the other chemical indices.

Despite sluggish overall price movements, there are market expectations that the return of Chinese consumers in March will push petrochemicals prices back up. However, some observers hold a more cautious outlook as China's petrochemicals inventory levels are currently at high levels. "In January this year, China's total polyethylene imports of around 750,000 metric tons is up 20 percent from January 2009," said Quintella Koh, Platts managing editor for petrochemicals Asia, explaining the cautious outlook from market participants. Polyethylene is used to make plastic bags, cling films, shampoo bottles, high-pressure water and waste pipes, and water tanks, among many other consumer goods.

In a longer term outlook, the expectations for a 10 percent increase in China's gross domestic product in 2010 augurs well for global petrochemical producers.

China's petrochemicals industry's sales, revenue and profits are headed for a double-digit increase in 2010, according to the China Petroleum and Chemical Industry Association. The association said China's key downstream sectors – such as the textiles, light construction and automobile industries – are estimated to rise around 15 percent this year compared to 2009.

Platts Global Petrochemicals Index 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 United States. The PGPI is anchored by Platts' robust and long-established price assessment methodology and is published daily in Platts Petrochemical Alert, a real-time news service, as well as in other Platts publications.

About Platts: Platts, a division of The McGraw-Hill Companies, is a leading global provider of energy and commodities information. With a century of business experience, Platts serves customers across more than 150 countries. An independent provider, Platts serves the oil, natural gas, electricity, emissions, nuclear power, coal, petrochemical, shipping, and metals markets from 17 offices worldwide.