Uncertainty in the air

With feedstock prices rising fast and growth in world demand slowing, there are warnings that start-ups of new ethylene capacity planned for the second half of this year could trip the chemicals business into a down-cycle, Martin Quinlan writes

THE WORLDWIDE chemicals business had four strong years to 2007, with demand and prices being driven upwards by growth in leading economies. But this year's escalating oil prices, pumping-up the costs of feedstocks and process energy, have put a squeeze on margins. If demand should falter – perhaps as a result of the banks' credit problems – the industry is likely to find itself with surplus capacity and the next down-cycle would loom. The chemicals business is notoriously cyclical, with strong growth in the up-cycles usually leading to over-investment in new capacity. When the new capacity comes on stream, prices start to slide and a down-cycle kicks in. The cycle is, inevitably, amplified b