Naphtha cracker margins to gradually improve into 2012 - analysts

06 January 2012 11:01  [Source: ICIS news]

Naphtha cracker at sunsetLONDON (ICIS)--Bernstein Research expects weak naphtha cracker margins to gradually improve into 2012, following a drop in the fourth quarter of 2011, it said on Friday.

The analysts believe petrochemical producers will operate plants with discipline and voluntarily cut operating rates or shut down for maintenance to keep inventories low, in order to enable margin improvement.

Using early contract settlements and spot prices, they also estimate that naphtha cracker margins have roughly stabilised in January, ending the decline of the fourth quarter.

Bernstein’s analysts said: “During the economic crisis, we believe cracker operators improved their capabilities to respond to rapid changes in demand. As a result, they are now better positioned to operate in a weak environment and preserve margins.

“Producers can also schedule maintenance downtime to help take up slack in the market.”

In September last year, Bernstein expected fewer operating problems and slowing volume growth to loosen the once-tight supply/demand balance for petrochemicals.

In the fourth quarter of 2011, this loosening happened in western Europe, the US and in Asia, especially for naphtha cracker by-products, resulting in lower margins, the analysts added

Bernstein’s analysts also said that fourth-quarter petrochemical by-product margins generally declined in the fourth quarter, “since price decreases across many products were more than raw material cost decreases”. They expect stability into 2012.

They said that in western Europe during the fourth quarter, propylene margins fell 38% quarter on quarter, crude C4 margins decreased 57%, while butadiene margins dropped 24%.

“These declines from peak levels are due to slowing demand growth and inventory destocking,” the analysts said.

As a result they expect weaker margins and volumes for BASF Chemicals in the fourth quarter of 2011 and during 2012.

But, they added: “Stable or lower petrochemical prices is good news for the downstream chemicals industries such as Bayer MaterialScience, AkzoNobel, and BASF’s downstream segments such as Plastics, Performance Products, and Functional Solutions enabling them to stabilise or expand gross margins.”

For more on naphtha visit ICIS chemical intelligence

By: Franco Capaldo
+44 (0)20 8652 3214

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