Murdered by naphtha

28 October 2003 16:54  [Source: ICIS news]

Third quarter results from BP’s petrochemicals business prompt a hardly original headline yet one that speaks volumes. The slump in quarterly profits – even taking into account significant restructuring charges – reflects high and volatile naphtha prices in Europe and lower demand. The naphtha cost pressure has been acute and difficult to deal with as monomer contract prices have moved at their own steady pace.

 

Producers knew they were in for a tough time when the third quarter ethylene contract price slumped by Euro130m, or 22%, to Euro445m per metric tonne, the steepest quarterly fall in 17 years. The strong second quarter for Europe’s big petrochemicals players was immediately replaced by a tough few months in which margins were squeezed tight by raw material prices that moved up by as much as 20% between $230 in late Q2 and $275 per metric tonne in Q3.

 

It is hardly surprising then that major players would dearly like to be able to take advantage of more flexible pricing structures for ethylene and the major polyolefins. Whether they make much progress on these fronts, however, remains to be seen.

 

Just last week, Shell revealed a disappointing set of results for chemicals. It said that margins had been hit by high feedstock costs coupled with low demand and lower product prices. Base chemical margins declined in Europe and the liquid feed cracker margins in the US suffered as crude prices increased.

 

BP has suffered in much the same way in Europe although derivatives have held up against a tighter supply/demand background. It warned today (28 October) that fourth quarter prospects will be influenced by the continued strength of feedstock costs.

 

Petrochemicals profitability in Europe was hardest hit in the quarter compared with the third quarter of 2002 and the relatively strong second quarter of 2003. The business in the UK slumped into loss while the decline in continental Europe was 66% compared with the third quarter of 2003 and 73% compared with the relatively strong second quarter of the current year. The downturn in the US was less severe.

 

Petrochemicals turnover was $3.80bn - up 2% compared with the corresponding quarter of 2002 but down 5% compared with the second quarter of this year. The pro forma operating result in petrochemicals adjusted for special items was $124m in Q3 against $272m a year previously and $308m in the second quarter of this year.

 

The tough conditions aside, BP stressed today its expectation that the petrochemicals businesses will do better when supply/demand balances improve. The focus remains on the seven core products as outlined in the strategy presentation to investors in February. So far this year petrochemicals capacity has climbed 3% in the core business largely because two new purified terephthalic acid (PTA) plants in Asia have been brought on-stream as has additional high density polyethylene (hdPE) capacity. BP has also deepened its share in two joint ventures.

BP has been driving costs down achieving 3% lower cash fixed costs per tonne of capacity in the first nine months of the year. The cost control target is for a cut in cash fixed costs per tonne of capacity of 40% between 1998 and the end of 2003.

 
Spot naphtha prices in North West Europe. Source: ICIS-LOR


By: Nigel Davis
+44 20 8652 3214



AddThis Social Bookmark Button

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly