Weak naphtha cracker margins are expected to gradually improve into 2012, following a drop in Q4-2011, as per Bernstein Research reported in ICIS. The analysts believe petrochemical producers will operate plants with discipline and voluntarily cut operating rates or shut down for maintenance to keep inventories low, in order to enable margin improvement. Using early contract settlements and spot prices, the researchers also estimate that naphtha cracker margins have roughly stabilised in January, ending the decline of the fourth quarter.
As per Bernstein’s analysts, during the economic crisis, we believe cracker operators improved their capabilities to respond to rapid changes in demand. As a result, they are now better positioned to operate in a weak environment and preserve margins. Producers can also schedule maintenance downtime to help take up slack in the market.
In September 2011, Bernstein expected fewer operating problems and slowing volume growth to loosen the once-tight supply/demand balance for petrochemicals. In Q4-2011, this loosening happened in western Europe, USA and Asia, especially for naphtha cracker by-products, resulting in lower margins. Petrochemical by-product margins generally declined in the fourth quarter, since price decreases across many products were more than raw material cost decreases. The researchers expect stability into 2012. In Western Europe during the fourth quarter, propylene margins fell 38% quarter on quarter, crude C4 margins decreased 57%, while butadiene margins dropped 24%. These declines from peak levels are due to slowing demand growth and inventory destocking.