Chemical demand growth is slowing

Staff -- Purchasing, 6/2/2005

U.S. demand for petrochemicals accelerated significantly in 2004 given additional support from exports, particularly to Asia. Petrochemical demand, including basic organic chemicals and synthetic resins, was up more than 6% from 2004. Analysts Global Insight expects growth to moderate in 2005-2006 as the economy moves from recovery to expansion and exports ease. In fact, the market for commodity chemicals appear to have plateaued during the first quarter, and buyers polled in April and May reckon the purchasing slowdown will continue into the third quarter.

Producers and analysts agree that the sales market has been weaker than expected. The market price for inorganic chemicals such as nitrogen is barely stable. And, efforts to raise prices of organic chemicals appear to have failed early in the second quarter. June spot prices for benzene hovered at $3.65 per gallon, down from $3.85 in April and $3.70 in May. Toluene deals for the future have been completed in a range of $1.70 to $1.85 per gallon, as compared with $2.49 in April. Transaction prices for mixed xylenes were reported around $1.79 per gallon for June, as compared with $2.22 in April.

Producers generally expect the market to strengthen once inventories are worked down and consumption revives; however, when that will happen still is anybody's guess. That's why buyers believe commodity chemical prices could continue falling in the next few months.