INSIGHT: NPRA ’11 moods reflect opportunities and uncertainties

28 March 2011 21:18  [Source: ICIS news]

By Nigel Davis

SAN ANTONIO, Texas (ICIS)--Is the mood upbeat or curiously subdued at this year's NPRA International Petrochemical Conference (IPC)? Last week in this city, US refiners were buoyant people who attended the annual gathering of that sector. Petrochemicals players are a different bunch.

US-based industry participants recognise the short-term challenges as well as the longer-term shale gas driven potential. They and delegates from elsewhere (there are about 2,800 registered delegates at the 2011 IPC meeting in total - the NPRA was hoping for a few more) are clearly concerned about the impacts that political unrest in north Africa and the Middle East and Japan’s terrible disasters might have on the sector.

Recovery from the downturn has been impressive in both volume and financial terms. But now a degree of reality steps in.

US demand for petrochemicals has been good, but the national economy is not recovering at the pace that might be expected at this stage in the cycle. Petrochemicals gained from the upstream advantage - their uptake in the early stages of recovery was strong.

The latest indicators on home sales, however, were disappointing, as the American Chemistry Council (ACC) pointed out at the end of last week. New home sales fell to an historic low. "The unwinding of the housing crisis is now in its fifth year and appears to be still searching for a bottom,” the ACC’s economics department said.

“Durable orders slipped for the second consecutive month, raising some eyebrows. But these data are notoriously volatile and other indicators continue to point to an expansion in manufacturing.”

US chemicals production rose 0.9% in February with gains in every region, it added, although individual product reports were mixed. The potential for shale gas, however, has clearly lifted spirits in the industry.

In Europe, the eurozone debt crisis hangs over the EU’s economic recovery, as do the public spending cutbacks that have been necessary to reduce heavy national debt burdens.

In Asia, stimulus-led demand growth for petrochemicals following the slump was spectacular. But the region has attracted a great deal of the new capacity that came on-stream in the Middle East, so margin growth for industry participants in China in particular has not been as strong as it might have been.

ExxonMobil Chemical president Stephen Pryor on Sunday noted the fall in operating rates in Asia in and the climb elsewhere in 2010. He was speaking to ICIS on the sidelines of the IPC.

“The US [petrochemical industry] is running at very high utilisation rates,” he said, but output is still below the peak of 2007. Growth in Europe is “fairly limp” and producing only “red-line margins”, he added.

It will be a challenging year for Asia business, he suggests, as the region continues to absorb new Middle East capacity.

While there is much talk about feedstock availability and price at the meeting - as well as the prospects for additional ethylene supply from competitively-priced ethane - it is the current and near-term future demand picture that is most uncertain.

Prices are rising, underpinned largely by oil-price inflation. But demand growth remains subdued.

Inflation will be a problem this year as consuming markets recover from the recession. Consumer confidence itself is not great.

The great unknowns currently have to do with the unstable political situation in north Africa and the Middle East and the earthquake, tsunami and unfolding nuclear disasters in Japan.

The spread of the civil unrest to Saudi Arabia, for instance, would have a significance well beyond anything seen to date. However, some believe that the pressure for reforms is such that concessions will be made. The investment climate could become more stable as a result.

Companies are starting to assess the supply chain impact of Japan’s terrible problems. If logistics and power supplies are disrupted only for a relatively short while, then the impact would be short-lived.

The longer such disruptions persist, however, the greater the chance that suppliers of raw materials into important auto and electronics supply chains will begin to feel the impact.

The petrochemical sector, clearly, can look ahead with some confidence. The trend line is for healthy upstream petrochemical demand growth over the medium to long term, certainly at a favourable multiple to global GDP.

Short-term uncertainties, however, and slowing demand growth compared with the 2009/10 bounce back, suggest that 2011 generally will be a tricky year.

Hosted by the National Petrochemical & Refiners Association (NPRA), the IPC continues through Tuesday.

By: Nigel Davis
+44 20 8652 3214

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