04 February 2011 17:02 [Source: ICIS news]
By Nigel Davis
“The biggest impact quarter on quarter was the rapid rise in feedstock costs that really outpaced price increases,” ExxonMobil chairman Rex Tillerson told financial analysts this week. New capacities had also weakened the oil giant’s chemicals margins, and the downward margin trend had continued into January, he said
The impact of higher oil-related feedstock costs in particular, but also of higher ethane prices in the
As the earnings season gains momentum, the heartening return to strong profitability is overshadowed by cost and margin pressures. Rising crude oil-based feedstock prices simply cannot be passed on quickly enough. Demand uncertainty has increased given the commodity price pressure in so many markets, not simply in chemicals.
“Overall, the world continues to recover to pre-recession levels,” Dow Chemical CEO Andrew Liveris said on 3 February. “However, with inflation concerns in emerging geographies, lingering unemployment issues in the
Having ridden the rising earnings tide, companies are prepared for a period of flatter growth.
“The closing quarter of 2010 was a disappointing end to the year for many petrochemical producers,” consultancy ChemSystems said in a sector report released this week.
Tightening markets in
The situation was different in the
Polyethylene consumption in the quarter was strong. Average margins were down just 5% compared with the third quarter of 2010 and well above the long-term average given the comparative competitiveness of ethane cracking.
Petrochemicals demand in
Margins for producers in the
“Many petrochemical producers will be exposed to a very harsh trading environment in the near term,” ChemSystems says, talking about a business in which capacity additions in 2011 are expected to continue to exceed incremental demand growth.
“Whilst consumption growth is much beyond the control of the industry itself, the supply side, over which it has direct influence, presents an alarming divergence.
“The considerable cumulative excess capacity built since 2008 will take many years to [absorb] and operating rates will remain heavily depressed in the near term,” it adds.
($1 = €0.73)
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