Oversupply In Petchems Still On The Way

Perhaps not just yet….

ian%20dury.jpgBy John Richardson

COULD it be that some chemicals industry players and observers, in the great galloping rush to join the supercycle stampede, have got ahead of themselves in predicting that we are already through the bottom of the margins trough?

This distinct possibility was raised by Joe Duffy, consultant with DeWitt & Co, in a discussion with the blog.

“I always get nervous when people talk about ‘floods’ and ‘tsunamis’ of new supply. What matters is not the absolute volume as much as whether or not it exceeds expectations,” he told us.

“At the start of this year people were extremely pessimistic and maybe going into next year they are a little too optimistic,” added Duffy, who is the petrochemical consultancy’s vice-president for ethylene, polymers and derivatives for Europe and the Middle East.

“The market can turn the wrong way if supply exceeds expectations by as little as one tonne.

“I am a bit concerned that the growing supercycle consensus is confusing the short and the long-term.

“You can make a case that based on announced capacity that things will tighten a lot in 2014-2015 – and perhaps as early as 2013 if people buy ahead.

“But we at DeWitt still think that next year will be a year of absorption as the plants in the Middle East that are already on-stream run better.”

The YanSab and Sharq complexes in Saudi Arabia have yet to maximise production and the recently commissioned giant Borouge complex in Abu Dhabi will take around 18 months to be fully stabilised, several industry sources have told us.

Production downstream of the new Ras Laffan Olefins Co facility in Abu Dhabi is nowhere close to being maximised.

Plus one would have thought the myriad technical problems confronting the PetroRabigh plant in Saudi Arabia will eventually be rectified.

Another factor pointing to further year of absorption is more bullish forecasts about global oil demand for 2011, including one issued by OPEC recently.

“We are assuming that oil demand will be slightly better next year and so there will be more associated gas available for the older, more established crackers,” said Duffy.

He explained that older and newer complexes have seen their feedstock allocations reduced to only being sufficient to supply their original design capacities.

An excess of optimism might lead to some major disappointments next year as financial performances and earnings per share fail to live up to expectations.

This could be the case even if the bubbles in commodity prices, driven by too-much easy money, haven’t inflicted long-lasting damage now that the air has started to escape.

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