21 November 2005 12:20 [Source: ICB Americas]
SCARCE SUPPLIES of ethylene have sent US prices and margins through the roof. The market is now poised for a second peak that should endure longer than the brief three-month stay the industry saw early in 2005, said to Banc of America Securities analyst Kevin McCarthy.
With Dow Chemical’s Taft, La., plant down for a turnaround and BP’s Chocolate Bayou, Tex., and Formosa Plastics’ Point Comfort, Tex., units off-line because of explosions, roughly 9 percent of US capacity was down during October, said McCarthy. In addition, a number of other plants on the US Gulf Coast were still in start-up mode following Hurricane Rita. These factors led to a 9 cent-per-pound increase in October contract prices and spot prices above 70 cents.
“This stands in stark contrast to the pre-buying activity that drove margins to peak-like levels nine months ago, only to unwind rapidly with a painful inventory correction in the second quarter,” said McCarthy. “
With ethylene margins set for a prolonged peak, McCarthy favors Dow and Lyondell Chemical. “[Dow] benefits from its capability to process favored oil-based feeds as well as strong performance among specialties,” he said.
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