Crazy Butanol and Octanol Prices

The August prices of butyl alcohol (butanol) and octyl alcohol
(octanol) doubled that in January this year throughout seven
months lift. Tight supply even makes the spot offer not exist
on the ground. Sellers reported out of stock due to strong demand.
Buyers shifted the cost into their products such as DOP, DBP,
butyl acetate, butyl acrylate while claimed the high prices.
Propylene that is the raw material for manufacturing
butanol/octanol got a price increase rate of 20% during the seven
months. Who ignited the crazy price hike? "Speculators make use
of the factors of tight supply and brisk demand to accumulate
goods in the stock, which accelerates the price increase speed,"
a consulting researcher says. While we start to be worry about
the high price, the prices of butanol/octanol slip down from the
ceiling level this week because buyers are quiet and do not want
to buy anything at such a high price. That is an excessive sample.
    Referring to China's petrochemical industry, overheated
investment has remained for several years, even if it has been
warning by the government. Li Yongwu, Chairman of China
Petroleum and Chemical Industry Association, pointed out that
the significant problems faced by the petroleum and chemical
industry included overheated investment in fix asset,
bottleneck in environmental protection and overheated
development in coal chemical sector. In the first half the
investment growth rate in fix asset reached 36.3% in petroleum
and chemical industry, which is 6 percentage points higher than
the average number of the whole country. The investment growth
rate in pesticide reached as high as 48.1%. The warnings and
policies given by the central government have not brought into
any effect. Overheated investment is increasingly causing the
further tight of resources, as a response, margin has been
narrowing in chemical industry.    
   Economists out of the country paid more attention to the
economic status in China than ever before. Some foreign
economists or research organizations gave solutions to the
overheated investment problem took place in China. They think
that the state owned firms typically left the profit in its
pocket instead of giving share dividends to the state that is
the majority shareholder, those firms will reinvest by using of
the profit, which helped the overheated investment. Presently
most of the profit is made by the huge state owned firms, such
as Sinopec, CNPC, CNOOC in petroleum and chemical industry. It
is the fact that most of large scale investments were made by
huge firms. Many such investments are planned and approved by
the government. Except the central government, other local
governments are always eager to construct large scale project
so that the employment problem can be solved and the local
economy can be brisk, furthermore, local officials can get
political success. Most of state owned firms are controlled by
the local governments, which is the real reason for overheated
investment rather than the left profit in firms.

Zhong Weike
September 15, 2006.