By John Richardson
THE optimism of Saudi Arabian petrochemical producers remains extremely high, according to an industry observer who spoke to the blog.
One might think we were to some extent stating the blatantly obvious as their margins will have swelled thanks to higher oil prices.
But there is also little concern among the producers that higher crude might cause a global economic bust, said this same observer - despite what we believe is a great deal of evidence to the contrary.
Another risk he pointed to in quotes below was operating-rate increases which end up being out of sync with the market.
This is a risk we have highlighted before. To a significant extent rate increases might happen because the feedstock is available rather than because the market is in a healthy-enough state to take increased volumes.
In his words, this is what he told us:
"The Saudi crackers are continuing to run at 80-85% and so obviously if there is more associated gas available through increased oil output, then we could see these crackers going to 100%. I estimate that this would represent a total of an additional 1m tonne/year of ethylene - in other words, one extra worldscale cracker.
"If all the European crackers were to go from their current operating rates of an average of around 80% we are talking about a lot more - 2.5m tonne/year of extra ethylene. This would obviously also depend on feedstock availability -i.e. how the refineries run in Europe for the rest of this year - and on demand.
"The mood among the Saudi producers remains exceptionally buoyant, the best for several years.
"Earnings in 2010 were excellent and they feel that this year could be even better. They were sold out by mid-January and told their customers 'come back in February when we will probably raise prices.' This also applied to some producers elsewhere.
"There is no real talk of the big macro-economic risks. Even if China's percentage growth rates slow down you are talking about lower growth from a much-bigger base than 5-10 years ago. China's polypropylene (PP) consumption is now bigger than that in the US.
"On logistics, and as well as on feedstock, what you see and what you calculate is different from what the companies say.
"You visit plants and you see resin stacked in the desert. They say 'this is because our capacity is so big', but obviously when you plan a complex you factor in sufficient storage to prevent resin from degrading in the desert.
"On feedstocks you can calculate from the trade data and earnings that they are, in fact, running at a lot less than 100%."