27 October 2011 17:36 [Source: ICIS news]
HOUSTON (ICIS)--Higher naphtha costs could idle 2m tonnes of cracker production in Europe and Asia, the chief executive of Dow Chemical said on Thursday.
Many crackers in those regions rely on naphtha, and margins could tighten if naphtha prices continue to rise.
He made his comments during an earnings conference call.
Meanwhile, prices for polyethylene (PE) are being pressured by concerns about the European economy and by expectations that demand for the resin will fall.
"We expect high-cost crackers in Asia and western Europe to begin to feel the margin compression in the very near term," he said. "Pure naphtha plays are the most squeezed right now."
Liveris said 2m tonnes of naphtha crackers could be idled as a result. Altogether, "we've identified about 4m tonnes of vulnerable production right now based on pure naphtha plays, mostly in Europe but some in Asia".
Whether those crackers will be temporarily idled or permanently shut down will depend on the direction of the economy and how strongly confidence recovers, Liveris said.
"We believe we are going through shallow-like trough conditions right now," Liveris said. "We believe demand will come back – GDP growth will be somewhere around the 2% mark."
"With that, I think it will be more idling than shut down," Liveris said.
Dow's European crackers can use liquefied petroleum gas (LPG) as a feedstock, so they are less vulnerable to naphtha costs.
"Long-term dynamics are very positive for Dow," Liveris said.
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