Think Tank: US Q1 results hit by poor weather

08 May 2014 17:24 Source:ICIS Chemical Business

As downstream demand improves, petrochemical producers in North America and Europe face the challenge of keeping their plants running effectively. Plant operability is the key element in margin improvement as winter turns to spring, alongside basic feedstock economics and flexibility.

Companies in North America were hit in the first quarter of 2014 by extreme winter weather and its impact on logistics and NGLs (natural gas liquids) feedstock prices. The warmer than usual winter in Europe may not have had the opposite effect but did not hamper productive output or logistics.

 

 Extreme weather in the US crimped demand for chemical products

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US cracker operating rates were estimated to have been lower in the first quarter than in Q1 2013, according to ICIS. European operating rates, structurally lower than in the US by a few percentage points in recent years, had strengthened as the quarter progressed.

That sort of level of operability has underpinned financial performance in the first quarter.

Producers faced some tricky problems in US in February as the poor weather hit. By March, cracker operating rates were estimated to have been between 90% and 95% compared with 93% in March 2013. In Europe, an industry-wide rate of 80-85% was the same as the year before.

A reflection of those rates can be seen in the first-quarter 2014 financial results of industry majors.

LyondellBasell, for instance, said its US olefins business had been hit by maintenance as well as NGLs price volatility. That volatility had been driven by rising demand because of the cold.

In the EU, the company’s olefins capacity utilisation rate was 93% in the quarter, and margins were expanding because it was cracking advantageously priced feedstocks.

Shell’s chemicals sales volumes increased by 3% year on year in the first quarter with “improved operational performance partly offset by poorer intermediates market conditions in most regions. Chemicals manufacturing plant availability increased to 95% from 92% for the first quarter 2013, as a result of decreased planned maintenance.”

ExxonMobil’s US chemicals earnings dropped by 9.7% in the first quarter while rest of the world chemicals earnings were down 4.4%. US production volumes were only down 1.2%, however, while rest of the world chemicals output was up 5.4%.

Increased output should be a feature of the second quarter as petrochemicals demand improves, albeit at a relatively slow pace alongside the industrial and consumer-led economies.

By Nigel Davis