Huge fluctuations in polymer feedstock prices resulted in wide price disparity of all polymers in 2008

Olefins in 2009
Almost 63% of global capacity additions in 2008-2012 will happen in the Middle East and China, raising their share of global production to 27.6%. In other terms, ethylene capacity in the Middle East and China will account for 14.8% of worldwide installed capacity in 2008. Since most Chinese and Middle East petrochemical projects will get commissioned at the same by 2010, it will lead to a glut of ethylene and polyethylene products in the global market. More capacities are scheduled to come on stream in the Middle East in the next few quarters. Unable to use all the output for captive consumption, the Middle east region relies heavily on exports - particularly to Asia. Currently Chinese import growth is lagging behind Middle East capacity growth. The Middle East region, therefore, will require exploiting new markets at a time when global capacity operating rates are falling. Other markets of Western Europe and the Americas are geographically remote from the Middle East region and difficult to penetrate. New mega polyethylene capacity additions are also scheduled to come onstream in China around the same time. Hence the Middle East petrochem industry could face a challenge of exports to China in a couple of years. PE from the Middle East will offer a cost advantage over Chinese PE mainly because of cheaper feedstock and input costs and inherent economies of scale based on low feedstock costs. The average production costs for ethylene and polyethylene is about 50% lower in the Middle East than in North and East Asia. This is posing a sharp challenge to China's upcoming petrochemical industry.
Olefin markets in Asia are projected to have a jerky journey in 2009 as markets remain bearish due to estimates of muted spot pricing and oversupplied downstream markets. Several cracker operators have been operating at 70-80% capacity since August in a bid to cope with deteriorating demand amid a global economic meltdown. Though initiated as a temporary measure, most key players are not restoring normal operations in the near term as uncertainty shrouds demand. Since supplies have already been restricted by the producers, it remains to be seen if buyers would be successful in bringing down prices from 2008 levels. Pricing of propylene and ethylene in 2009 will essentially lie on the demand side, due to an expected oversupply situation - 1.5 mln tpa polypropylene (PP) from the Middle East will be added next year, along with 1 mln tpa from India. Fresh stand-alone propylene supply is also expected from within Asia, with a new fluidised catalytic crackers (FCC) coming on stream from state-run PetroVietnam, and Pertamina in Indonesia. Also scheduled to come onstream between H2-09 and Q1-10 are 4 new crackers in China , another 2 from Thailand 's PTT and Shell in Singapore.
Ethylene could remain firm in 2009 on limited supplies, but the rise could be restricted due to weak downstream derivative markets of styrene monomer, vinyl acetate monomer and polyethylene. Buying interest will definitely firm up in Q1-09 in Southeast Asia as supplies will get restricted due to planned turnarounds in the region. However in the longer term, an influx of ethylene and its derivatives from the Middle Eastern countries of Qatar, Saudi Arabia and Kuwait starting from 2009, is estimated to depress prices, particularly of polyethylene (PE), hence indirectly affecting ethylene prices. But demand could be even worse by the time product from the delayed and on-time units hits the market. And demand has already been slashed, with China alone expected to see zero or even negative growth in PE, PP and polyester in 2008. The boom times for the Chinese petrochemical industry appear to be over as producers report a massive drop in net profits due to tightening margins and government controls on fuel prices. While feedstock costs moved north, prices on the Chinese petrochemical market slumped in Q3-08 due to high inventory levels, aggressive price competition and concerns over the global downturn. The slump in prices is related to tighter lending conditions in China, that led the small sized processors and compounders to bankruptcy as most were unable to borrow to purchase polymers. As over 50% processors in Shanghai and Guangdong region are reliant on exports, the situation has been aggravated by the slowdown in the West, particularly the US 's declining demand for polymers. Chinese petrochemicals producers are looking to the Chinese government's planned economic stimulus package, to be unveiled by end-2008. It would include tax cuts and a boost for the capital market to fuel growth in housig and construction. The package would help stimulate the polymers market, raise product prices and offset the effects of the US slowdown and global credit crunch. Despite these problems, petrochemical capacity will continue to climb.

India in 2008 & beyond
In India, it was a promising start to the year with the economy growing at well above 8% and the Sensex touching a staggering 21,000 points in late January. Inflation was the only worry as global crude prices were near the US$100 mark. For its part, the government was confident about handling inflation and announced a Rs 60,000 crore debt relief package for farmers which became the highlight of the annual budget. But global crude prices showed no signs of relaxing, pushing to the double digit mark. The global subprime crisis took its toll, the stock markets started crashing as FIIs pulled out billions of dollars. The Sensex has lost more than 60% this year and is now hovering around the 10,000 mark, making it one of the worst performers in the Asian equity scene. As per the country's Home Minister, India is nowhere near recession though it has been impacted by the global economic meltdown. The government is trying a balance between growth and controlling inflation and was biased in favour of growth, leading to announcement of a stimulus package earlier this month. Even if industrial growth continues to remain weak, the growth rate of India's GDP is most unlikely to turn negative since the services and agriculture sectors are likely to continue to grow. While the exact effects of the slowdown of US economy are difficult to quantify, it is expected that there may be some moderation in India 's capital flows and in the growth of exports. India's foreign exchange reserves have fell below US$250 bln from over US$300 bln at the start of 2008-09. Though overseas operations of some banks have been taken a hit in derivatives, no public sector bank with overseas operations has reported credit losses till September 30.