OUCC to gain from strong MEG margins - JP Morgan

06 December 2007 04:02  [Source: ICIS news]

SINGAPORE (ICIS news)--JP Morgan has raised Taiwan’s Oriental Union Chemical Corp’s (OUCC) earnings per share (EPS) estimate by 47% for the year as it expects the firm to benefit from strong monoethylene glycol (MEG) margins in 2008, it said in a report on Thursday.

The research arm of the investment bank projected MEG margins of $550/tonne (€374/tonne) and $430/tonne for the first two quarters of 2008 respectively, and margins of around $800/tonne for December 2007, on expectations of continued limited MEG supply, it said.

The delayed start-up of a new 400,000 tonne/year Iranian MEG facility and speculation that regular supply from the Middle East would not resume in January as assumed previously, has made current sentiment towards MEG more positive, it added.

Imports of MEG into China - Asia’s largest consumer of MEG - had been decreasing steadily since August 2007 and are expected to continue their fall in November 2007, the report said.

The lower import volumes coupled with relatively flat domestic production and robust polyester production could then lead to an inventory draw, thus benefiting OUCC, it said.

JP Morgan estimated MEG to account directly for around 63% of OUCC’s 2007 operating profit, but added that total profit exposure to MEG pricing could be around 80% due to ethylene amine (EA) and ethylene carbonate (EC) prices being projected to move in tandem.

OUCC currently has the capacity to produce 300,000 tonnes/year of MEG and over 260,000 tonnes/year of ethylene oxide (EO). It also operates a 40,000 tonne/year ethanolamine unit and a 40,000 tonne/year EC unit.

The bank has projected return on equity (ROE) to OUCC to jump to about 25% in 2008.

($1=€0.68)

By: Joyce Khoo
+65 6780 4359

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