INSIGHT: Weaker Europe, Asia and cracker co-product margins hit in Q3

02 November 2012 15:46  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS)--ExxonMobil’s earnings from chemicals in the third quarter fell by $213m (€164m), or 21%, from the year-earlier period largely on weaker margins and tougher business conditions in Europe and Asia, the company said on Thursday.

This picture of the latest quarter in petrochemicals has been reflected across all companies in the sector.

US margins were held up with a lower ethane price offsetting ethylene price falls in the quarter. But weak demand in Europe coupled with higher liquid feedstock costs and not so great profits from cracker co-products produced a difficult three months.

In Asia, demand dropped both year on year and quarter on quarter in 2012. Prices also were under pressure.

The world’s largest petrochemical producer did not say a great deal on Thursday about its latest quarterly performance in chemicals, but it did acknowledge that $150m of the profits decrease for the period was due to lower margins.

“All other items, mainly unfavourable foreign exchange effects, decreased earnings by $60m,” it added. The company said that its product sales in chemicals were down slightly year on year but that the decrease was due to restructuring of operations in Japan.

Shell Chemicals’ sales volumes were also down slightly in the third quarter year on year and the energy giant’s chemicals earnings were pressured by lower cracker margins in Europe and in Asia. A 3% drop in chemicals sales volumes was also due to the impact of Hurricane Isaac on operations in the Gulf of Mexico.

“We are seeing evidence of the weak economy all around us in our downstream marketing, and our chemicals businesses,” Shell’s CFO, Simon Henry said. “In chemicals, we saw weaker Q3-Q3 margins in Europe, and a broadly similar picture in Asia, where margins remained weak,” he added.

The company did not release any numbers related to chemicals profits for the quarter or the prior reporting periods.

France’s Total, also reporting this week, very much echoed the sentiment of other major cracker operators and noted that the petrochemical environment in Europe had deteriorated in the third quarter from the second quarter. Its refining and chemicals segment earnings were up sharply from the third quarter of 2011 but on much improved refining margins.

“Petrochemical margins further deteriorated in the third quarter because of weak demand in Europe and a slowdown in China,” it said.

Weaker liquids cracking profits were one of the factors behind the decline in olefins and polymers profits from Canada-based petrochemical and polymer producer Nova Chemicals.

The third-quarter operating profit for this part of the company’s operations was $226m from $287m in the third quarter of 2011. Nova’s total profit for the period was $107m from the $150m earned in the third quarter of 2011.

A lower ethylene price for product out of its Joffre Alberta cracker was more than offset by a lower gas feedstock cost for the plant. However, returns were depressed from the mixed feed cracker in Corunna, Ontario, because of lower ethylene and co-product prices.

“Average co-product prices decreased in the third quarter of 2012 compared with the third quarter of 2011, with butadiene lower by nearly 50% and chemical grade propylene lower by approximately 35%,” the company said.

Nova is able to crack advantaged ethane feed in both its crackers and is integrated downstream into polyethylene which it sells mainly on the North American market.

Its polyethylene segment reported an operating profit of $16m in the third quarter compared with an operating loss of $39m in the third quarter of 2011. “The improvement was primarily due to increased margins, as feedstock costs declined more than selling prices,” it said.

On Wednesday, Phillips 66 added colour to the olefins and polyethylene picture in North America particularly when it revealed strong chemicals results for the third quarter.

Phillips 66’s adjusted third-quarter chemical segment earnings rose by $82m, or 42%, year on year to $275m, mainly because of improved margins and lower utility costs, the US-based refiner said.

Its chemicals business comprises a 50% stake in Chevron Phillips Chemical (CPChem)

Olefins chain margins were higher in the quarter because of lower ethane and propane feedstock costs. Global capacity utilisation in CPChem’s olefins and polyolefins segment was 97%, on a par with the third quarter of last year, it said.

“CPChem captured cost advantages in the North American and Middle East ethylene and derivative markets by achieving high utilisation rates,” the company added.

($1 = €0.77)

Read Paul Hodges’ Chemicals and the Economy blog
Bookmark John Richardson and Malini Hariharan’s Asian Chemical Connections blog

By: Nigel Davis
+44 20 8652 3214

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