Commodity Online
Can the crash in crude oil prices help the plastics industry? The input cost for plastics--crude oil--has collapsed. But the demand for plastics has also drastically come down. Read here an interesting analysis on global plastics industry by Fortis Metals Monthly.

Outlook
Packaging is a major plastics use, and an area particularly hard hit at present. About 80% of China's imported plastics go into exported goods, and the US and Europe are not buying, period. The global recession is worsening by the week, and all eyes are on the political establishments from North America to Far East Asia to kick-start the world economy. Even though the key plastics input cost--crude oil--has collapsed, so too has demand for plastics.

Review
Nov 9th: The Gulf Cooperation Council states' plastics industry is growing at an annual rate of 20% and the growth is likely to accelerate in the near future, according to Duplas Al Sharq, a subsidiary of Emirates Investment and Development (Emivest).

Nov 3rd: The Chicago Mercantile Exchange launched two plastics futures contracts on ClearPort. The two contracts are polypropylene and polyethylene, and each will be listed for 24 consecutive months, beginning with the January 2009 contract. The contracts will be 47,000lb (21.3t) in size and will feature physical delivery in Houston.

Oct 31st: Driven by widening product applications of polyethylene, the world ethylene market is projected to reach 161 Mt/y by 2015, according to Global Industry Analysts.

Oct 20th: The $10bn first phase of the PetroRabigh complex, a joint venture between Saudi Aramco and Sumitomo Chemical, is due to come online by end-2008, manufacturing 1.3 Mt/y of ethylene and 900,000t/y of propylene.

Analysis
Lower crude oil prices will help
Plastics prices continued to head down in October and early November, without a sniff of the rally seen in other LME contracts.

This may be due to very low liquidity. By 17th November, the cash LME LLDP and PP global contracts had lost 54% and 53%, respectively, to reach record contract lows of $755/t and $705/t. They were $1,650/t and $1,502.5/t, respectively, on 18th September.

Industry participants now consider broader plastics prices are in freefall. Saudi Basic Industries Corp (SABIC) expects its fourth-quarter earnings to be hit by a rapid slide in prices and a slowdown in demand. SABIC posted its first quarterly decline in profits in more than two years in Q3 2008, after prices of polypropylene and polyethylene dived by 50% to below $1,000/t.

The company anticipates that the decline in production costs will not offset the drop in revenues resulting from lower prices. Key processors in Asia, particularly China, rely very heavily on demand from the markets of the West. With deteriorating
export demand as well as bearish domestic sentiment, petrochemical majors inventories are building.

This has led to production cuts or suspensions. Export sales of several Chinese processors are down by about 30%, as orders evaporate, leading them to reduce output. However, the silver lining is retreating polymer prices making Chinese products cheaper, and this may tempt buying.

Courtesy: Fortis Metals Monthly