01 February 2008 16:50 [Source: ICIS news]
By Nigel Davis
There is some encouragement to be had from the fact that producers have been able to push up prices in the first few weeks of 2008. But margin has already been lost and customers are keener to keep on challenging further price increases. The expected supply driven downturn and deep concerns about the
Shell on Thursday shed some light on the state of the market in the fourth quarter when it said that industry cracker margins had fallen 14% in the US to $356/tonne, plunged 48% in Europe, to $331/tonne and all but disappeared in Asia compared to the year before period, to a mere $10/tonne, as feedstock costs rose ever higher.
Even these numbers have caused some surprise – Shell stresses that they are their estimates of industry averages and do not represent its own. Other market players suggest, particularly, that the
It is, however, not so much the absolute numbers that are important – there is such a high spread in profitability between different plants in different locations – but the direction margins are taking and the shape of the curve they follow.
Petrochemical and polymer industry prices continue to rise but feedstock costs have overtaken most if not all players. Dow said earlier this week that its feedstock and energy costs were 31% or $1.7bn higher in the fourth quarter of 2007 than in the year earlier period. Its total energy and feedstocks bill last year was $24.6bn, three times that paid in 2002.
Shell’s chemicals output volumes were higher in the quarter and it was able to operate its crackers and other plants much more effectively – it suffered capacity outages in the fourth quarter of 2006. Its quarterly chemicals results were up.
ExxonMobil, on the other hand reported somewhat lower chemicals earnings – down 10% overall and down 34% in the
It will be overseas growth particularly that drives North American producers in 2008. So long as
Nova Chemicals CEO Jeff Lipton was characteristically upbeat this week when he commented on Nova’s prospects. The integrated polyethylene producer is advantaged in the feedstock chain given its ability to tap into lower cost ethane from
In that position, the company was able to lift export cost effectively to places like
The demand pull downstream from the cracker is particularly important now given shrunken margins from both naphtha and ethane fed plants which, in the fourth quarter, were below the three year average on the US Gulf coast.
The industry needs further polymer price increase to help restore returns.
But as everyone in the business knows, new capacity additions may well take the shine of margins and profits from later this year.
New capacities in
Because of US financial sanctions, buyers were having difficulties getting letters of credit from any of the major banks to [purchase] polyethylene from
Given its latest PE operating rate projections Nova Chemicals expects 2008 to be a very good year and stronger than it previously forecast. “We also expect industry supply and demand balances to stay strong in 2009, 2010 and 2011 and return to current very high levels in 2012,” Lipton said.
Even given a negative view on the
The company’s detailed view is on its website.
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