US ethane prices to rise in second half – analyst

06 February 2012 18:36  [Source: ICIS news]

Analyst predicts higher ethane prices in USNEW YORK (ICIS)--US ethane prices, which have been plunging since the beginning of the year, are poised to recover in the second half, an analyst with US-based investment bank Morgan Stanley said on Monday.

“Although ethane will likely continue to fall in the coming weeks, we forecast ethane prices recovering in the second half of 2012,” said Morgan Stanley analyst Vincent Andrews in a research note.

“We caution investors against getting too excited over cheap ethane feedstock, as ethane demand could hit new highs by the end of the year, while there is limited evidence that supply growth will tip the balance into oversupply in that time frame,” he added.

US ethane prices are down more than 30% this year.

Andrews sees ethane demand rising in the second half as US producer BASF FINA Petrochemicals increases ethane cracking capabilities at Port Arthur, Texas, and US-based Dow Chemical restarts its Taft, Louisiana, cracker.

He points out that senior management at opposite ends of the ethane/polyethylene (PE) value chain have made contrasting forecasts for ethane prices.

Dow Chemical CEO Andrew Liveris said on the company’s fourth quarter conference call that he expects US ethane to be structurally long in the second half of 2012 and beyond.

However, US natural gas processing and pipeline company Enterprise Product Partners chief operating officer Jim Teague sees the ethane market likely to stay in balance, even after its Appalachia-to-Texas ethane pipeline (ATEX Express) comes on line in 2014, Andrews noted.

For now, US polyethylene (PE) margins from ethane feedstock are surging because of cheaper ethane prices.

“Spot integrated ethane to polyethylene margins rose to $0.42/lb [$926/tonne, €704/tonne] this week, the highest levels since April 2010,” Andrews said.

Andrew Cash, analyst at global investment bank UBS, noted that the plunge in US ethane prices this year took nearly all industry observers by surprise.

“We believe that logistical barriers are being overcome, enabling newly installed NGL [natural gas liquids] fractionators to run at high rates,” Cash said.

“Traders now anticipate that there will be adequate ethane inventories ahead of cracker shutdowns that will shutter 8% of industry capacity in April and 4.5% in May,” he added.

($1 = €0.76)

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