INSIGHT: Weak prices, lower volumes hit petchem players in Q4

24 January 2012 17:33  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS)--Although costs were higher in the fourth quarter, chemical producers were clearly hit hard by the sharp falls in volume demand across multiple products and industries.

DuPont, on Tuesday, showed how important it had been to keep prices high in a weaker economic and industrial environment.

“We delivered exceptional full-year results in 2011 despite significant market headwinds late in the year,” CEO Ellen Kullman said.

“Volume declines in all regions were driven by destocking in photovoltaics, polymer and industrial supply chains, as well as weaker demand for products supplying consumer electronics and construction,” the company added.

DuPont managed to hold its fourth-quarter net income close to the year-earlier level but profits were down 17.5% from the third quarter.

The broadly-based specialised chemical producer showed how price rises had offset the multi-regional volume declines from the year-earlier period

The company is the world’s largest producer of the white pigment TiO2 (titanium dioxide), for example, and its performance chemicals segment benefited greatly from very high TiO2 prices throughout 2011. Sales prices in the segment were up 29% in the fourth quarter from the year earlier period, helping to more than offset a 17% drop in volumes.

Prices were pushed higher also year on year in chemicals, coatings, materials and electronics & communications.

But not all chemical producers have been able to pass on higher oil-derived and other costs to the same extent particularly as volumes and market confidence has slipped away alongside any economic certainty.

Steep quarter-to-quarter price declines will have amplifed the downturn for petrochemical producers and certainly those tied to oil-based feedstocks.

The ICIS Petrochemical Index (IPEX), which represents a basket of commodity petrochemical prices, was just 5.1% higher in the fourth quarter of 2011 year on year and down 14.6% from the third quarter.

The ICIS Petrochemical Index

SABIC last week blamed lower prices for the worse-than-expected decline in its fourth-quarter earnings, which were down 10% year on year and 36% lower than in the third quarter.

SABIC said that its volumes had been higher during the reporting period but that it had been hit by lower selling prices. A loss at the Saudi Kayan joint venture also clearly dented the net result.

The company’s results surprised financial analysts with a fourth-quarter net income of Saudi riyals (SR) 5.2bn ($1.4bn), 44% lower than the consensus estimate of SR7.4bn. And it remains to be seen how, other, generally higher-cost players were hit in the final months of the year by the downturn. There are possibly more surprises to come.

Petrochemical industry margins, particularly, in Europe and northeast Asia were slashed in the fourth quarter as prices fell and naphtha costs remained high. Producers cracking liquids were hit by lower prices for important cracker co-products such as butadiene and propylene.

In the fourth quarter, cracker margins in northeast Asia were their lowest since the first quarter of 2009 while in Europe margins were weaker and operating rates miserably low.

That combination will have hit returns for producers in what had been otherwise a good year.

In the US producers benefited from low ethane costs and, on average, saw an excellent year with operating rates relatively high.

Contract margins on the country’s crackers fell at the beginning of the third quarter, however, while gains were made towards the end of the year.

($1 = SR3.75, €1 = SR4.88)

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By: Nigel Davis
+44 20 8652 3214

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