By Malini Hariharan
Predictions about a steady recovery in petrochemical margins from financial analysts have multiplied in recent weeks and producers too have turned bullish with many expecting to sail through 2011 without any major difficulties.
But in the midst of this optimism a few cautionary voices can still be heard.
Analysts at South Korea-based Woori Investments predicted in a recent report that petrochemical margins would continue to decline in 2011 as utilization rates at new plants in Southeast Asia and the Middle East pick up gradually. This would coincide with a slowdown in Chinese import growth due to a rise in local production.
Pic source: www.egmcartech.com
"We believe that [global ethylene] supply will rise 10m tonnes over the next year, topping our global demand growth estimate of 5m tonnes over the same period," the analysts estimated. Their forecast was based on the assumption that commercial production would start at new facilities with a total capacity of 6.2m tonnes/year and higher utilization rates at plants that were expanded in 2010.
However, this should not pose much of a problem for hybrid South Korean companies such as LG Chem which should benefit from strong growth potential in the battery business.
The analysts were more bullish on the refining sector with projections of high oil prices and strong refining margins in 2011.
"We expect Asian refining margins to expand from an average $4 in 2010 to $6 in 2011, and that oil prices and refining margins will increase further if the US and European economies recover quickly," they said.
Global oil demand has risen rapidly on growing consumption in developing countries, including China. This has led to most refining facilities ramping up utilization--leaving little room for additional increases as of Oct 2010, they added.
Among the South Korean refiners, their top pick was SK Energy although S-Oil could become attractive if paraxylene (PX) prices continue to rise after the company completes a capacity expansion in Q2 2011.