INTERVIEW: Integrated C2 producers can still gain

30 January 2007 04:48  [Source: ICIS news]

By Nurul Darni

SHANGHAI (ICIS news)--Integrated producers could still reap hefty margins although ethylene feedstock costs have jumped recently, a senior official with India’s Reliance Industries said late on Monday.

"Integrated companies are still making handsome profits. But it’s tough for non-integrated producers whose margins are being squeezed," Kishor Jhalaria, president of olefins and cracker business at Reliance Industries, said in an interview. 

The price of Asia’s spot ethylene had risen in the last two weeks to above $1,300/tonne CFR (cost-and-freight). While the integrated margin of ethylene producers had increased, the same could not be said for margins of intermediate producers such as polyethylene and monomer products.

High ethylene feedstock costs have crunched margins as production costs have risen, ethylene buyers have said. Certain producers' margins in Asia, especially the non-integrated companies, have become so low that some have been forced to reduce operating rates.

"For integrated companies like ourselves, we could still enjoy strong margins lower down in the other derivatives chain," Jhalaria said.

The price of naphtha, a feedstock for making ethylene, has also risen to over $500/tonne CFR Japan with the price of crude oil, from which it is made.

"High oil prices are no longer a deterrent, at least to our profitability. At one point, when oil price soared to over $70/bbl, we were making much better profit margins than we ever did before," he said.

Jhalaria also said that recent high Asian ethylene price should consolidate at a more modest level later this year, once the market found its equilibrium and returned to its own actual fundamentals.

"I expect spot ethylene price (in Asia) to trade around $1,200/tonne (CFR) level on average this year. It would be difficult though for the price to hit the roof like last year’s near $1,500/tonne level again," Jhalaria said.

By: Nurul Darni
65 6789 4359

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