Tough fourth quarter for petrochemical players

30 January 2012 00:00  [Source: ICB]

picture caption: The fight is on to maintain sales and margins

picture credit: Rex Features

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

DuPont showed how important it had been to keep prices high in a weaker economic environment. "We delivered exceptional full-year results in 2011, despite significant market headwinds late in the year," CEO Ellen Kullman said.

The company added: "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."

US-based DuPont managed to hold its fourth-quarter net income close to the level of the same period a year earlier, but profits were down by 17.5% from the third quarter. The diversified science-based chemical producer showed how price rises had offset the multiregional volume declines from 2010's fourth quarter.

Petrochemical industry margins, particularly, in Europe and northeast Asia, were slashed in the fourth quarter as prices fell and naphtha costs remained high. That combination 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. 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 have 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 by 14.6% from the third quarter.

Saudi-Arabia-based 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 its volumes had been higher during the reporting period but that it had been hit by lower selling prices. It remains to be seen how other, generally higher-cost players were hit by the downturn. 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.

By: Nigel Davis
+44 20 8652 3214

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