15 February 2013 10:51 [Source: ICIS news]
LONDON (ICIS)--Increased ethane cracking in the US is likely to lead to greater levels of petrochemical price volatility, which could lead to higher input costs for most European companies, US-based financial analyst Bernstein Research said on Friday.
According to the company, the ongoing shift away from naphtha cracking in favour of ethane has decreased the production of many co-products, which could lead to increased volatility for petrochemical companies.
If unaddressed, the trend could result in periodic quarterly profit warnings if companies fail to manage inflation, Bernstein added.
The abundance of low-cost ethane in the US as a result of the shale gas boom has led to crackers in the country shifting more towards the feedstock, despite the profit-enhancing potential of several naphtha cracking co-products. This feedstock flexing affects the balance of other chemicals, Bernstein said.
Out of the key European listed petrochemical companies, BASF is likely to be the most insulated from this trend, Bernstein said, due to its strong levels of backwards integration.
Bernstein said: “Petrochemical margins in general increased due to increasing prices and falling costs. In addition, European and US volumes are improving sequentially. However, we expect continued price volatility in cracker co-products due to the ongoing shift away from naphtha cracking which has led to co-product scarcity.
“This volatility will periodically cause input cost problems and possibly quarterly misses for many chemical companies,” the firm added.
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