PEP Review 94-3-3
Petrochemical Industry Cyclicality and Outlook
The recent sharp upturn and equally precipitous downturn in petrochemical profitability has refocused interest on the industry's cyclicality. It is a subject that SRIC's Chemicals and Energy Practice and the Process Economics Program (PEP) have been studying for the past decade, and an overview of our current thinking is therefore timely.
To understand the key drivers better and to provide an improved perspective on price and profitability projections and their limitations, we examine the nature of the supply, demand, and profitability cycles for petrochemicals. We focus on the underlying factors that we believe cause cyclicality, assess the extent to which cycle timing may be predictable, and present scenario-based projections.
Because of the broader availability and reliability of data, for quantitative illustrations we use mainly ethylene and first-line derivatives and focus primarily on the United States. However, because the ethylene chain provides an excellent surrogate for petrochemicals in general and because the United States still provides the global benchmark, the analysis is broadly applicable to the worldwide petrochemical industry as a whole. The review should be of particular interest to planning and evaluation groups.