Exec: Current events can impact energy prices

AKRON—Figuring out how the market is trending when it comes to feedstocks and energy prices for the synthetic or natural rubber latex industry is anything but easy. That's why so few do it well.

Bill Hyde has had more success with his crystal ball than most of his counterparts. The senior director of olefins and elastomers for IHS Chemical Inc. admitted that making predictions in his area of expertise is far from an exact science.

“The problem with forecasting energy prices, especially in the short term, is that they are often disconnected from actual market fundamentals,” he said. “The "market sentiment' is often influenced more by current events than supply and demand.”

Hyde also noted IHS has a large team that follows energy and economic trends, and that “gives us a view of the markets that I don't think many firms share.”

During his presentation “Synthetic Latex Feedstock Trends: Will Oil Price Turmoil Rock the Boat or Is It Full Speed Ahead?” at the International Latex Conference, Aug. 11-12 in Fairlawn, Ohio, and in a later interview, he tackled trends in both the energy and petrochemical sectors.

Hyde indicated that, like 2014, supply, demand and pricing continue to be volatile on the petrochemical side, which in turn impacts the synthetic rubber latex industry.

Butadiene—a co-product of ethylene, the most important of all industrial petrochemicals—is a vital feedstock in the synthetic rubber latex industry.

Hyde said butadiene demand will remain relatively soft in the near term. “The combination of weak natural rubber markets and slow demand growth will keep synthetic rubber prices low in the short term.

“This dynamic, combined with low naphtha prices, will keep butadiene prices low relative to the past couple of years. In the longer-term market, tightness will return, and prices will increase. This will clearly take several years.”

He said ethylene is trending lighter and longer-term investment trends are more uncertain; propylene continues to shift toward on-purpose production because of sufficient supply; and styrene's short-term market tightness probably will give way to a reasonable market balance.

Overall, rubber latex producers likely will see lower prices if they are buying large commodity raw materials, the IHS official said. In some cases, he added, rubber latex producers are purchasing smaller volumes of raw materials. “The full impact of the lower energy complex is probably not being passed along to consumers” by those firms.

In terms of oil and gas pricing, Hyde said the oil supply grew by a million barrels a day more than was dictated by demand.

He said that volatility ramped up last year and is not expected to abate in 2015, “which can have a chilling effect on investments.”

A number of factors contributed to a market surplus on both the supply and demand side, he said, including fewer disruptions in Libya, the U.S. shale revolution, OPEC inaction, a slowdown in emerging economies and a slowdown in demand from China.

Hyde said the oil market focus in 2014 shifted from geopolitical risks to weak market fundamentals as crude prices have fallen more than 50 percent since mid-June of last year.

He predicted that tight oil investment in the U.S. will slow by an estimated 30 percent for the remainder of 2015, bringing month-to-month production growth to a halt by the end of the year.

Under-investment will lay the foundation for a rapid escalation in prices toward the end of the decade, he said, as demand outstrips supply.

“The collapse of prices in 2014 may look like a perfect storm, but lack of short-term adjustment mechanisms mean it will rather be akin to a prolonged mon-soon,” according to Hyde.

He predicted oil prices eventually will return to previous levels but not quickly. Natural gas prices will remain low relative to crude oil even in the near term.

For the time being, crude oil and natural gas prices probably will not change much in the U.S. “Oil could have a bit more of a down side, but natural gas will probably stay in roughly the same range it has been in for the last few months.”