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SINGAPORE : Prices of petrochemicals, which are used to make plastics and textiles, have slumped to 5 or 6 year lows after reaching record highs in June.
The prices have now fallen 50 to 80 per cent below their peaks due to fears of a global slowdown. And producers are expecting tough market conditions ahead.
Shoppers around the world are tightening their belts and cutting back spending on items like consumer electronics and clothing.
Demand is expected to continue falling as global economic growth slows. And manufacturers are scaling back production. This has caused steep falls in prices of petrochemicals, which are used to make plastics and textiles.
Manufacturers are also cutting back on petrochemical orders due to a lack of capital as credit lines dry up.
Quintella Koh, managing editor, Petrochemicals Asia, Platts, said: "We see banks freezing their lending, and that leads to end users not (being) able to get capital to manufacture their plastics, textiles."
Ms Koh added: "Asia is a very big petrochemicals production region. Most petrochemical plants are having to grapple with weak margins. In this unstable environment, producers have two choices - one (is) to cut operating rates massively, two (is to) shut down (the) plant completely.
"That is a reality in Northeast Asia and China. We see that reflected in Southeast Asia as well. Singapore petrochemical companies, as far as we know, are not spared in this current credit turmoil."
Experts said firms in China and other countries in Northeast Asia and Southeast Asia will be hit.
However, analysts said a recovery could occur in mid-2009 as consumer demand picks up, and markets regain lending confidence.
But more challenges are expected. The Gulf region, led by Saudi Arabia, will bring on stream six new petrochemical plants next year.
Ms Koh said: "Southeast Asia and Northeast Asia and China will have to contend with one of the key challenges next year - supply issue. We are seeing a lot of new capacity come on in the Gulf region, led by Saudi Arabia.
"The Gulf region alone is going to bring on stream something like six new crackers next year. Each (has) world scale capacities ranging from a million to 1.3 million metric tonnes.
"From (the) supply side, we are going to see markets faced with (the) task of having to grapple with not only new supply but a lot of new supply."
Platts said most plants have already cut back on production to between 70 and 80 per cent of capacity in response to today's low prices. - CNA/ms
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