Led by Supply
Prices of petrochemical products are shooting up altogether. Analysts say that unlike the past when demand picked up sharply due to global economic booms, demand did not gain significantly, but absolutely a shortage of supply was blamed on price hikes. Considering that supply cannot increase in the short term, a chemical industry renaissance is likely to continue for a considerable period of time.
The price of international caustic soda rose by more than 52 percent to US$505 per ton compared to October of last year, according to the petrochemical industry on October 9. It is the first time since 2010 that caustic soda prices exceeded US$500. Caustic soda is widely used as a cleaning agent at industrial sites for dyeing and semiconductors among others.
Toluene diisocyanate (TDI) which is used for production of shoe soles and asphalt raw polyurethane, a material for asphalt, is currently US$4,450 per ton, up 90% from last year, and prices of ethylene also known as "the main petrochemical item" swelled 27.8 percent. Moreover, butadiene prices rose by more than 58% over the past three months to US$1,550 while paraxylene (PX) prices by 7.3% and styrene monomer (SM) prices by 13%, respectively.
Although the petrochemical industry suffered a short-term downturn in the second quarter of the year, there is much anticipation that the petrochemical super cycle is on its way as the petrochemical industry is recovering rapidly. In general, the petrochemical industry goes through a boom or a recession every six to eight years. This is because the chemical industry which had suffered oversupply in several recent years and consequently the worst market slump refrained from increasing production facilities and building new production facilities, addressed gluts and is showing a sign of an upcycle.
However, some analysts say that past upcycles and current market conditions are somewhat different. In the past, supply affected the cycle to some extent, but in the end, an increase in demand for petrochemical products drove up prices. Now, prices are being hiked because supply itself is absolutely short rather than demand grows. In particular, a supply shortage is causing by external factors such as regular repairs and maintenance by global petrochemical companies such as those in China and Europe, natural disasters and government regulations. In fact, China is experiencing a decline in production due to strong environmental regulations and a decrease in the operation of coal-to-olefin (CTO) facilities and Hurricane Harvey pulled down the operation rate of ethane decomposition facilities in the US.
In the case of caustic soda, prices of which are surging, the shutdown of CTO pruned PVC production rates and a drop in PVC production gave rise to a drop in production of chlorine used as raw material. Prices of caustic soda produced in this process also rose as its supply shrank.
The petrochemical industry expects the current situation to continue for the time being. As oil prices continue to stabilize at around US$50 per barrel and global regulations are being tightened and restrictions are imposed on and limit the operation of old facilities and pollutant emission facilities. In particular, the fact that global chemical companies are not actively engaging in expanding new production facilities as much as in the past is positive for Korean companies as well.