Super cycle still intact after Dow expansion - analyst

21 April 2011 18:31  [Source: ICIS news]

NEW YORK (ICIS)--The case for a petrochemical ‘super cycle’ through 2015 will not be affected by US-based Dow Chemical’s planned expansions, including a new cracker on the US Gulf coast, an analyst said on Thursday.

Dow announced on Thursday plans to build a world-scale ethylene plant on the US Gulf coast, for start-up in 2017. The plant is part of a broader plan to integrate Dow’s petrochemical business with feedstock opportunities from US shale gas.

Dow will also restart an ethylene cracker at the its St Charles site, near Hahnville, Louisiana, by the end of 2012; improve ethane feedstock flexibility for an ethylene cracker at Plaquemine, Louisiana in 2014; and increase ethane feedstock flexibility for an ethylene cracker at its Texas site in 2016.

“The St Charles facility has a capacity of 850m lbs or 386,000 tonnes, which represents around 0.3% of global ethylene capacity, so the restart will not really dent global supply/demand balances,” said Hassan Ahmed, analyst at US-based investment firm Alembic Global Advisors.

He estimated that at current US ethane-based ethylene cash margins of around 20 cents/lb, the restart could add about $170m (€117m) to Dow’s 2013 earnings before interest, tax, depreciation and amortisation (EBITDA).

“As far as building a new cracker goes, we believe the announcement highlights just how long it takes to set up a new facility. We estimate it would take at least 18 months to get all the required permits and thereafter another four years to build a new plant - not surprising that capacity announced by Dow today will come online by 2017,” said Ahmed.

US-based companies Chevron Phillips Chemical, Westlake Chemical and Dow have now announced planned cracker expansions. Brazil’s Braskem said on Tuesday that it would consider a US cracker and polyethylene facility.

“Despite Chevron, Westlake and now Dow announcing new builds, we continue to believe that the spread between global ethylene demand and supply growth CAGR [compounded annual growth rate] in the 2011-2015 time frame will average 210 bps [basis points, or 2.1 percentage points], suggesting a long drawn out and high amplitude peak,” said Ahmed.

He noted that the spread between demand and supply growth averaged 23 bps in the run-up to the 1995 peak and 42 bps in the run-up to the 2005 peak.

($1 = €0.69)

Author: Joe Chang

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