AFPM ’19: INSIGHT: Chemicals producers hoping for more positive H2 2019

SAN ANTONIO (ICIS)–Chemicals earnings guidance during the 2018 annual results season implied that this year’s first quarter will turn out to be very much like Q4 2018, although with sharp year-on-year declines and a general quarter-to-quarter downward trend.

Nothing has changed to alter that fundamentally, but sentiment at the macro economic level has worsened in recent days.

Petrochemical producers’ margins overall are probably at more normal levels compared with recent years. Pressure has built on producers as demand growth has slowed in the major consuming regions.

Analysis of Q4 industry data has prompted deep cuts in expectations for the industry in Europe this year, while the US appears to be holding on, although indicators have been turning down.

The US-China trade dispute continues to cloud the outlook, and the downward pressure in terms of demand globally is greater than it might otherwise have been.

China’s slowdown affects everyone.

It is a question, of course, of whether the Q4 slump had more to do with uncertainty and de-stocking than anything else.

Industry analysts suggest that the US-China trade dispute has not had much of an impact thus far on the ability of producers running new polyethylene (PE) plants in the US to place material, and point to the much-greater impact of China’s decision to stop importing plastics waste from the start of 2017.

It depends on how rapidly markets have recovered from de-stocking in Q4, as well as the first weeks of this year and the buoyancy of demand following the Lunar New Year holiday in February.

Data from China are worrying, with stocks remaining very high in March for some major petrochemical intermediates. They are well-above last year’s levels.

Delegates at the 2019 International Petrochemical Conference (IPC) will be testing the water, trying to pick up on market sentiment amid the welter of meetings on which they are primarily focused on.

Big producers, understandably, tend to take a positive view, particularly of the second half (H2). They believe that by then the destocking phase will have worked itself out, and demand growth fundamentals will have kicked in.

As ICIS reported earlier on Sunday, at this time of year demand is expected to pick up and, by now, petrochemical industry customers might be expected to be coming back to the market to rebuild inventories.

The drop in the crude oil price in 2018 helped reduce demand ahead of the calendar New Year and the impact can be seen in petrochemicals prices, which fell after crude dropped.

A recovery in crude oil prices has led to higher petrochemical and polymer prices, as the regional and global ICIS Petrochemical Indexes (IPEX) have shown.

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Specific to the US, of course, is the growth of ethylene and derivatives capacities as new ethane crackers are brought on-stream.

Critical to the fortunes of this industry in 2019 is the relationship between supply demand and (ethane) feedstock availability as the year progresses.

ICIS margin data show how an excess of ethane late last year helped to lift producer margins.

US ethane steam cracker margins
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Ethane availability is expected to be adequate in 2019, helping drive cracker operator margins.

The fact that two crackers are due on-stream on the US Gulf coast later in 2019, however, could lead to supply length and ethylene price pressure.

That will be when the demand side of the equation assumes even greater importance.

By Nigel Davis

Hosted by the American Fuel & Petrochemical Manufacturers (AFPM), the IPC takes place on 24-26 March in San Antonio, Texas.

Hosted by the American Fuel & Petrochemical Manufacturers (AFPM), the IPC takes place on 24-26 March in San Antonio, Texas.