23 May 2012 21:55 [Source: ICIS news]
HOUSTON (ICIS)--Customers are delaying chemical purchases because they expect prices will follow feedstock costs and decline, the chief financial officer for Dow Chemical said on Wednesday.
"Quite a few of them are holding off, I should say, to buy in anticipation of lower prices," said Bill Weideman, Dow chief financial officer. He made his comments during the Goldman Sachs Basic Materials Conference.
Buyers are delaying purchases because of the recent across-the-board drop in hydrocarbon costs, Weideman said.
Likewise, West Texas Intermediate crude oil was trading in the low $90s/bbl mid-day, compared with over $100/bbl at the start of the year.
The price drops have trickled down to olefins.
US April ethylene contracts fell by 0.50 cent/lb from March.
Moreover, spot ethylene saw sharp declines this month, with levels on 17 May down 18% from the start of the month. That drop on 17 May brought spot prices below contract prices for the first time this year.
Most US May butadiene (BD) contracts fell by an average of 7.50 cents/lb from April, and one producer nominated a 24% reduction for June.
Looking forward, Dow is optimistic about margins, Weideman said.
The oil-to-natural-gas ratio remains favourable to the company, he said.
Many of Dow's crackers rely on ethane as a feedstock, so the company can realise some benefit from a large spread between naphtha and ethane prices.
Dow expects natural gas prices to stabilise at about $4/MMbtu, a level that would encourage gas production, Weideman said.
Higher natural gas production should increase ethane supplies.
In addition, new fractionation and pipeline capacity should further increase the availability of feedstock ethane, Weideman said.
If the difference between naphtha and ethane prices remain large, margins should expand for ethane-based producers such as Dow, he said.
For Dow, every 10-cent/gal drop in ethane prices adds $200m/year (€158m/year) in earnings before interest, tax, depreciation and amortisation (EBITDA), he said.
($1 = €0.79)
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