North America ethane could lead to new cracker capacity - Lyondell

29 October 2010 18:16  [Source: ICIS news]

LyondellBasellHOUSTON (ICIS)--The availability of cheap ethane feedstock in the US could lead to increased cracker capacity in North America in coming years, the chief executive of LyondellBasell said on Friday.

However, it was still too soon to tell whether demand would justify such a decision.

“There has been a little bit of discussion about some cracker capacity additions, but it’s so early on that it’s hard to call that credible,” LyondellBasell CEO Jim Gallogly said.

“We do think there is an ongoing ethane advantage, but at this time the market doesn’t need the capacity,” he added. “So we’re not expecting new capacity anytime soon, but people have run some early economic analysis.”

Gallogly stressed that he was speaking from an industry perspective, as opposed to strictly for LyondellBasell.

Gallogly spoke during third-quarter earnings conference call. In the third quarter, LyondellBasell swung to a $467m (€336m) profit amid increased demand for polyolefins.

The chief executive noted that much of the company’s strong olefins margins this year were due to operating issues among competitors. As such, margins could drop heading into 2011. However, LyondellBasell should still benefit from the ethane advantage in the US.

“One of the advantages that our company enjoys [in the US] is relatively cheap ethane, and we expect that trend to continue for next year and future years,” Gallogly said.

The additional capacity expected to come online in the Middle East and Asia next year would pressure margins more in Europe than the US, he added.

Over the short term, the company noted that ethane prices had moved up slightly and that ethylene margins dropped by about 8 cents/lb in the third quarter.

However, strong polyolefins demand in the US was more than offsetting the decline, Gallogly said. A 10-cent/lb fall in ethylene outpaced polyethylene (PE), which only slipped by about 5 cents/lb in the quarter.

“We have been having good, strong [PE] demand,” Gallogly said. “Last year we were exporting about 30% of domestic production, and this year we’re at about half of that.”

In particular, exports to China had dropped dramatically, according to LyondellBasell.

“We’re exporting almost nothing to China because we’re able to get better margins in the US,” Gallogly said. “It’s been a very, very positive year in the olefins chain.”

LyondellBasell’s stock moved lower by 77 cents, or 2.8%, in mid-morning Friday trading on the New York Stock Exchange (NYSE). The company began trading on the NYSE on 14 October.

($1 = €0.72)

For more on LyondellBasell visit ICIS company intelligence
For more on olefins visit ICIS chemical intelligence
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By: Ben DuBose
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