Price dynamics of polypropylene and its feedstocks in Asia and North West Europe

Research output: Contribution to journalMeeting abstractResearch

Abstract

Purpose: To investigate the spot price dynamics of the polypropylene (PP) value chain in the Far East and North West Europe and discusses some of the main drivers of PP prices. Originality: The paper is motivated by the recent and growing debate on whether PP prices are cost or demand driven and we test this by looking at the lead-lag relationship between the prices of PP and its feedstocks. This relationship has not been tested previously. Key literature / theoretical perspective: To date, no published study is available that investigates the price dynamics of upstream and downstream value chains in the olefins, aromatics and downstream plastic and polymer industries. The relation between upstream and downstream prices is evident in several studies that model the dynamics between crude oil prices and refined petroleum products. Design/methodology/approach: The methodology is an extension of the Johansen cointegration methodology based on the ‘long-run structural modelling of Pesaran and Shin (Econometric Reviews 2002). Findings: The within-sample error-correction model results tend to indicate that PP prices in North West Europe appear to have been driven by the movements in upstream prices, namely propylene, naphtha and crude oil. In contrast to the above, PP prices in the Far East appear to have been driven by downstream demand where PP is used in various automotive, building and construction, industrial and household products. Research limitations/implications: Further research into the price dynamics can be tested by looking at any asymmetric effects between upstream and downstream movements in PP value chain. Since propylene is also used as an input in the gasoline market the influence of prices in these markets needs investigating. Practical and Social implications: The dynamics is important to PP producers and consumers as they are better able to gauge if the relationship is stronger between immediate feedstocks or further upstream prices.

Fingerprint

Polypropylene
Asia
Price dynamics
Value chain
Methodology
Plastics
Gasoline market
Crude oil price
Household
Polymers
Design methodology
Spot price
Industry
Lead-lag relationship
Cointegration
Structural modeling
Costs
Petroleum
Error correction model
Asymmetric effects

Keywords

  • oil prices
  • polypropylene prices
  • long-run structural modelling
  • generalised variance decompositions
  • generalised impulse response functions

Cite this

@article{b75276b2cd37460cabce089b754aeb23,
title = "Price dynamics of polypropylene and its feedstocks in Asia and North West Europe",
abstract = "Purpose: To investigate the spot price dynamics of the polypropylene (PP) value chain in the Far East and North West Europe and discusses some of the main drivers of PP prices. Originality: The paper is motivated by the recent and growing debate on whether PP prices are cost or demand driven and we test this by looking at the lead-lag relationship between the prices of PP and its feedstocks. This relationship has not been tested previously. Key literature / theoretical perspective: To date, no published study is available that investigates the price dynamics of upstream and downstream value chains in the olefins, aromatics and downstream plastic and polymer industries. The relation between upstream and downstream prices is evident in several studies that model the dynamics between crude oil prices and refined petroleum products. Design/methodology/approach: The methodology is an extension of the Johansen cointegration methodology based on the ‘long-run structural modelling of Pesaran and Shin (Econometric Reviews 2002). Findings: The within-sample error-correction model results tend to indicate that PP prices in North West Europe appear to have been driven by the movements in upstream prices, namely propylene, naphtha and crude oil. In contrast to the above, PP prices in the Far East appear to have been driven by downstream demand where PP is used in various automotive, building and construction, industrial and household products. Research limitations/implications: Further research into the price dynamics can be tested by looking at any asymmetric effects between upstream and downstream movements in PP value chain. Since propylene is also used as an input in the gasoline market the influence of prices in these markets needs investigating. Practical and Social implications: The dynamics is important to PP producers and consumers as they are better able to gauge if the relationship is stronger between immediate feedstocks or further upstream prices.",
keywords = "oil prices, polypropylene prices, long-run structural modelling, generalised variance decompositions, generalised impulse response functions",
author = "{De Mello}, Lurion",
year = "2010",
language = "English",
pages = "25--26",
journal = "Expo 2010 Higher Degree Research : book of abstracts",
issn = "1837-9214",
publisher = "Faculty of Business and Economics, Macquarie University",

}

Price dynamics of polypropylene and its feedstocks in Asia and North West Europe. / De Mello, Lurion.

In: Expo 2010 Higher Degree Research : book of abstracts, 2010, p. 25-26.

Research output: Contribution to journalMeeting abstractResearch

TY - JOUR

T1 - Price dynamics of polypropylene and its feedstocks in Asia and North West Europe

AU - De Mello, Lurion

PY - 2010

Y1 - 2010

N2 - Purpose: To investigate the spot price dynamics of the polypropylene (PP) value chain in the Far East and North West Europe and discusses some of the main drivers of PP prices. Originality: The paper is motivated by the recent and growing debate on whether PP prices are cost or demand driven and we test this by looking at the lead-lag relationship between the prices of PP and its feedstocks. This relationship has not been tested previously. Key literature / theoretical perspective: To date, no published study is available that investigates the price dynamics of upstream and downstream value chains in the olefins, aromatics and downstream plastic and polymer industries. The relation between upstream and downstream prices is evident in several studies that model the dynamics between crude oil prices and refined petroleum products. Design/methodology/approach: The methodology is an extension of the Johansen cointegration methodology based on the ‘long-run structural modelling of Pesaran and Shin (Econometric Reviews 2002). Findings: The within-sample error-correction model results tend to indicate that PP prices in North West Europe appear to have been driven by the movements in upstream prices, namely propylene, naphtha and crude oil. In contrast to the above, PP prices in the Far East appear to have been driven by downstream demand where PP is used in various automotive, building and construction, industrial and household products. Research limitations/implications: Further research into the price dynamics can be tested by looking at any asymmetric effects between upstream and downstream movements in PP value chain. Since propylene is also used as an input in the gasoline market the influence of prices in these markets needs investigating. Practical and Social implications: The dynamics is important to PP producers and consumers as they are better able to gauge if the relationship is stronger between immediate feedstocks or further upstream prices.

AB - Purpose: To investigate the spot price dynamics of the polypropylene (PP) value chain in the Far East and North West Europe and discusses some of the main drivers of PP prices. Originality: The paper is motivated by the recent and growing debate on whether PP prices are cost or demand driven and we test this by looking at the lead-lag relationship between the prices of PP and its feedstocks. This relationship has not been tested previously. Key literature / theoretical perspective: To date, no published study is available that investigates the price dynamics of upstream and downstream value chains in the olefins, aromatics and downstream plastic and polymer industries. The relation between upstream and downstream prices is evident in several studies that model the dynamics between crude oil prices and refined petroleum products. Design/methodology/approach: The methodology is an extension of the Johansen cointegration methodology based on the ‘long-run structural modelling of Pesaran and Shin (Econometric Reviews 2002). Findings: The within-sample error-correction model results tend to indicate that PP prices in North West Europe appear to have been driven by the movements in upstream prices, namely propylene, naphtha and crude oil. In contrast to the above, PP prices in the Far East appear to have been driven by downstream demand where PP is used in various automotive, building and construction, industrial and household products. Research limitations/implications: Further research into the price dynamics can be tested by looking at any asymmetric effects between upstream and downstream movements in PP value chain. Since propylene is also used as an input in the gasoline market the influence of prices in these markets needs investigating. Practical and Social implications: The dynamics is important to PP producers and consumers as they are better able to gauge if the relationship is stronger between immediate feedstocks or further upstream prices.

KW - oil prices

KW - polypropylene prices

KW - long-run structural modelling

KW - generalised variance decompositions

KW - generalised impulse response functions

M3 - Meeting abstract

SP - 25

EP - 26

JO - Expo 2010 Higher Degree Research : book of abstracts

T2 - Expo 2010 Higher Degree Research : book of abstracts

JF - Expo 2010 Higher Degree Research : book of abstracts

SN - 1837-9214

ER -