Chemical suppliers will keep pushing for higher prices

By Tom Stundza -- Purchasing, 4/30/2008 12:01:00 PM

Demand weakness has persisted throughout many end markets for industrial chemicals, including North American housing and automotive production and domestic commodity plastics. U.S. petrochemicals output will decline by about 1% in 2008 after increasing by 2.2% in 2006 and 2.1% in 2007, according to market insiders. But that hasn’t stopped producers from proposing price increases—with some success—to offset soaring costs of energy and raw materials.

The higher costs for oil-based fuels all boosted the various price indexes for chemicals—aliphatics, aromatics, coating grades, inorganics, pulp and paper grades, and the solvents—tracked by Purchasingdata.com all increased slightly in April over March. Another factor: Natural gas prices rose to a 2-year high in April because of the rally in crude oil prices and the shutdown of the Independence Hub in the Gulf of Mexico.

“Petrochemical prices have surged since 2003, posting double-digit increases every year, fueled by soaring energy costs and growth in overall demand,” writes economist Franz Price of Global Insight in a report to clients. “Since 2007, however, those hikes have largely failed to catch up with the meteoric rise in oil prices, and petrochemical margins have suffered.”

Also, the demand weakness in the North American automotive, construction and consumer goods end markets continues to keep resins businesses from succeeding in attempts to increase prices. Atop that, global overcapacity has kept pricing down for the vinyls. Note that strong export demand, low inventories, and domestic ethylene outages have kept North American polyethylene (PE) producers operating at an average rate of 95% year to date.

For more details, buy the latest Chemical Flash Report at Purchasingdata.com.