InterviewMiddle East turmoil to benefit US petchems - analyst

01 March 2011 16:25  [Source: ICIS news]

By Joseph Chang

NEW YORK (ICIS)--The political turmoil in the Middle East and its impact on oil prices will benefit US petrochemical producers, an analyst said on Tuesday.

US producers are becoming even more cost competitive on a global basis as Brent crude oil, the benchmark for European and Asian naphtha prices, has “gone through the roof, while US natural gas prices have declined,” said Hassan Ahmed, co-founder of investment advisory firm Alembic Global Advisors.

“What was already looking good for the low-cost producers is looking even better,” he added.

US petrochemical producers are benefiting from the low price of natural gas feedstock. Ethane, extracted from natural gas, is the primary feedstock for US production while oil-based naphtha is a key for European and Asian production.

The analyst projects a global petrochemical ‘supercycle’ driving profits to a peak in 2013-2014, with US producers being the prime beneficiaries.

A major part of his theory is what he calls an ethylene “capacity vacuum” after 2011, as available gas supplies dwindle in the Middle East.

Now “further unrest in the Middle East only creates more of a negative bias on future supply additions and availability of feedstock,” said Ahmed.

The analyst projects global ethylene capacity utilisation rates to rise from 86% in 2010 to 92% in 2014.

Even if global economic growth were to slow because of higher crude oil prices, US producers would be somewhat insulated, with European and Asian producers taking the brunt of the hit, said Ahmed.

“The way I see it, with 50–60% of global capacity still in the hands of naphtha-based producers, if there is demand destruction, those are the companies in greatest jeopardy,” Ahmed said.

“We should start thinking about the US producers, with the huge cost advantage they have now, as being more similar to Middle East producers in terms of operations. Even in a downturn, the Middle East players tend to run their facilities flat out,” he added.

Paul Hodges studies key influencers shaping the chemical industry in Chemicals and the Economy

By: Joseph Chang
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