CEE petchems margins face US, Middle East threat, says bank

05 December 2013 16:26  [Source: ICIS news]

LONDON (ICIS)--The lucrative petrochemical margins of Central and Eastern Europe's (CEE's) oil and petrochemical groups could deteriorate in coming years as US and Middle East rivals benefiting from cheaper feedstock ramp up their production, Erste Group Bank said on Thursday.

There was, for instance, a clear threat that Polish group PKN Orlen's “petrochemical margins are likely to be under pressure from the appearance of US and Middle East polymers on the market”, said Erste analyst Tamas Pletser.

Referring to “gathering clouds” over Orlen's petrochemical business, Pletser added: “In petrochemicals, we see the high margins going lower in 2016-2017, when new investments ramp up output. There are a lot of efforts under way in the US to turn former ethylene crackers into ethane crackers.

"These take advantage of the cheap ethane and other NGL [natural gas liquids] feedstock coming from shale gas production.”

Several new petrochemical projects being built in the Middle East based on cheap natural gas and crude oil resources also posed a competitive threat to Orlen's naphtha-based petrochemical operations, Pletser said, while addingn he saw “traditional naphtha-based crackers surviving as cracking ethane has no by-products like butadiene [BD] and propylene”.

For the years 2013 to 2016, Erste forecast that PKN Orlen would see model petrochemical margins of €740/tonne ($1,000/tonne), €750/tonne, €700/tonne and €675/tonne, respectively.

($1 = €0.74)

By: Will Conroy
+44 20 8652 3214

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