STUDY ASSESSES PETROCHEMICALS' PRICE MECHANISMS

Asian petrochemical prices are set by different mechanisms, depending on the specific material and country. While prices in Asian nations for some key petrochemicals respond predictably to traditional market influences, others are determined in unexpected ways, a study of regional pricing patterns for 16 petrochemicals by Chem Systems Inc., Tarrytown, N.Y., has concluded. Bruce H. Pickover, vice-president of Chem Systems, said the key is to look individually at each petrochemical product and

Aug. 9, 1993

3 min read

Asian petrochemical prices are set by different mechanisms, depending on the specific material and country.

While prices in Asian nations for some key petrochemicals respond predictably to traditional market influences, others are determined in unexpected ways, a study of regional pricing patterns for 16 petrochemicals by Chem Systems Inc., Tarrytown, N.Y., has concluded.

Bruce H. Pickover, vice-president of Chem Systems, said the key is to look individually at each petrochemical product and each country.

"Factors that set prices within a given country might be completely different for each petrochemical," Pickover said. "For a given petrochemical, there usually is one pricing mechanism in Japan, another in Korea, and another in southern Asia."

Chem Systems developed conclusions in its study by analyzing historical and current petrochemical pricing. It used the findings to forecast petrochemical prices through 1996. The report includes comparisons of Asian and U.S. domestic and export petrochemical pricing, as well as trade balances by country for each petrochemical studied.

In general, the report says, after a period of declining prices and. profitability, petrochemical prices in Asia are stabilizing and likely will rise.

PRICING MECHANISMS

Chem Systems found that prices of most petrochemicals in southern Asia are set by mechanisms related to prices on U.S. markets, with recent short term downward pressure resulting from distressed exports of new South Korean plants.

In another example of varied Asian petrochemical price influences, the company found that, while most petrochemical derivatives in Japan are priced considerably above international levels, ethylene glycol and vinyl chloride monomer prices have declined to import parity because of international competition. Prices diverge because to recover high feedstock, labor, and utility costs, Japan must set high prices for most petrochemicals produced and consumed at home.

"However, there is a shortage of some products in Japan -like ethylene glycol and vinyl chloride monomer - and it's cheaper to import those," Pickover said. "So they have to price those domestic petrochemicals at parity with imported material."

Also in Japan, while domestic ethylene prices are set without regard to international markets, Chem Systems found a strong correlation between japan's domestic operating rates and producers' cash margins. In addition, domestic propylene and ethylene prices are related.

In South Korea, after manufacturers built substantial new polypropylene capacity and South Korea shifted from a net polypropylene importer to exporter, prices adjusted abruptly to competitive international levels. The result is that Korea's domestic propylene prices are derived by the product's relationship with ethylene prices.