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Wed 10 Mar 2010 04:00 AM

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Green shoots of recovery?

Prices of petrochemical products have increased noticeably in the last few months, reflecting a net improvement in market fundamentals.

Green shoots of recovery?
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Prices of petrochemical products have increased noticeably in the last few months, reflecting a net improvement in market fundamentals.

Some product prices have more than doubled, such as ethylene which jumped from US$600 per tonne in February 2009 to $1220 per tonne just one year on. Others have increased significantly too. Polypropylene traded at $890 per tonne in February 2009, and is currently trading at arround $1310, a 14 month high.

These fascinating numbers will surely appear in higher incomes in the next round of quarterly financial results of Middle East's petrochemical producers.

However, new capacities from the Middle East are coming on stream, mainly from Saudi Arabia and Iran, which may disrupt the balance of supply and demand, suppressing, or even wiping out any recent gains.

On the other hand, aging facilities in Europe and America, and increasing demand from Asia could balance the equation nicely, whilst maintaining a price level most would agree is fair, if not good.

Arabianoilandgas.com, the online home of Petrochemicals Middle East held a poll in February which showed that 50% of participants believe that the current prices are fair, while 5.6% thought that the current prices are excellent.

Personally, I am with those who believe that prices are indeed fair. Compared to historical averages, the market today mirrors what we last saw in 2006 and 2007 - widely considered great years for the industry. At these prices there will be enough liquidity in the market to fund new regional investments, further cementing the region's status as the new epicentre of downstream production.

Abdelghani Henni is the editor of Petrochemicals Middle East.

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