US Petchems “Double Peak” Theory

Wall Street rounding up investors?

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Source of picture: Rex Features

 

In a guest blog post, Joseph Chang, the global editor of our magazine, ICIS Chemical Business, echoes our own concerns that it is getting very frothy out there. The “this time it will be different” school of thought sems to be controlling the sentiment of the US petrochemicals industry.

 

By Joseph Chang

US petrochemical companies and Wall Street analysts are getting more bullish on the outlook for the US petrochemical sector.

Buffeted by widening margins on low natural gas liquids (NGLs) feedstock costs as a result of the shale gas boom, and a tightening market, Dow Chemical CEO Andrew Liveris sees a “double peak” in the cycle before the flood of capacity in the form of new worldscale crackers comes on in 2016-2017.

This is not the traditional meaning of a double peak consisting of a peak followed by a dip and then another peak – rather a doubly good peak!

And “supercycle” is once again entering the Wall Street lexicon, as Morgan Stanley analyst Vincent Andrews sees the “potential for an ethylene supercycle in the 2014-2016 timeframe”.

This would benefit large ethylene players in the US such as Dow, LyondellBasell and Westlake.

Few would disagree that US shale gas is a game changer, [perhaps not?] and it looks like there could be more upside in these stock prices.

But especially in a cyclical business, beware “game changers and paradigm shifts”. Too many players shifting in one direction can lead to extreme swings.

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