Petchem operating rates could fall sharply - S&P

25 September 2007 15:59  [Source: ICIS news]

LONDON (ICIS news)--Petrochemical industry operating rates could fall by 10 percentage points over the next three years if demand slows and overcapacity bites, Standard & Poor’s (S&P) warned on Tuesday.

European players would be under particular pressure, the credit rating agency said.

S&P reiterated its suggestion that chemicals demand growth was looking increasingly shaky and that the timing of the downturn remains highly sensitive to changes in this growth.

It said on Monday that a petrochemicals downturn might be expected in 2009 as a result of overcapacity assuming demand growth of 3.5% a year.

“The timing of reaching the trough as well as the length of the cycle remains highly sensitive to growth assumptions for Asia," S&P European chemicals director Tobias Mock said in London at the start of a chemicals road show.

The industry has been on an upward trend for years but petrochemicals operating rates are highly sensitive to overall demand development, he said.

“The heavy pressure will be on producers in Europe,” Mock added.

US polymer and petrochemicals makers were better protected from big new capacity additions in the Middle East because of structural and feedstock factors, he suggested.

Speciality chemicals should benefit from the weakening petrochemicals cycles as long as demand stays intact, S&P said.

The chemicals sector in Europe had benefited from 12 consecutive quarters of increased selling prices but Mock said this would not be a “continuing story”

Chemical company fortunes would diverge in a downturn, S&P said, with petrochemicals players more exposed.

Conditions are expected to remain much better for producers of agrochemicals, fertilizers and industrial gases, it said.

The ratings agency warned, however that the next downturn could be more prolonged than in 2001 and 2003. The industry is more leveraged than in the past which suggests that the risk of defaults has increased, it added.

By: Nigel Davis
+44 20 8652 3214

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