Petrochemical producers see healthy margins and high prices in Q1-10

Q1-2010 witnessed rising plastics prices with healthy margins for integrated producers amid relatively crude oil prices that have been high within a confined range, as per Chemorbis. Improving economies has resulted in better demand as the markets await new capacities expected to impact the market in H2-2010. Not all producers benefited from this combination of factors, but many reported healthy financial results and all attributed it to high sales and good margins Ineos reported a 150% jump in Q1-10 earnings vs Q1-09. The company reached a “record level of profitability” across its chemicals business during the quarter. Sales were up 47% vs last year with revenues at €5.6 bln (US$7.5 bln) which created a historical cost EBITDA of €494 mln (US$658 mln). Ineos highlighted that petrochemical prices in Europe surged in March due to constrained availability of feedstock. In the US, Ineos said its historical cost EBITDA was at €101 mln, up from €36 mln in 2009 because they have been using cheaper gas feedstocks to improve margins and cracker utilization rates in the US were well above the average of the industry during the quarter. South Korea’s LG Chem reported a “record” level for the quarter as sales surged to a record level of Won4.42 trillion, up 32% from Q1-09, while its net profit was up 73% due to strong demand from China and higher prices. Net income was reported for the quarter at Won 517.7 bln (US$463.1 mln). "The strong performance was driven by the petrochemical sector boosted by higher prices of chemical products and solid demand from China," LG Chem said. Taiwan’s Formosa Group reported a large jump in sales by 64.5% to US$11.6 bln in Q1-10, driven by higher plastics and chemicals prices. Including Formosa Plastics, Formosa Chemical and Fibre, Formosa Petrochemical and Nan Ya Plastics, the group saw a 57.5% increase on its combined March sales on the year, while the figure was at US$3.95 bln. According to local media sources, the group attributed the jump in sales to the global economic recovery, rising global oil prices as well as delays in the startups of some new capacities across the world. Not surprisingly, China’s petrochemical industry also saw higher net profit in Q1-10 according to an official from the ministry of industry Xin Guo Wu. He said net profits surged 1.8 times to Yuan 91.6 billion ($13.4 billion) due to increased production and higher profitability. India’s Reliance Industries Limited also reported a jump of 29.8% in its Q1 net profit at Rupee 47.10 bln (US$1.06 bln) which the company attributed to “higher earnings from the petrochemicals division” and a recovery in refining margins. In the petrochemicals division, revenues were up 59% to Rupee 154.48 bln, while EBIT from the segment was up 29.6% at Rupee 22.22 bln. The company said that domestic demand for most petrochemical products was strong with polymer demand up 19%. “There was a substantial improvement in overall petrochemical margins, with the industry operating on lower inventory levels, leading to higher domestic realization,” the company said. In the Middle East, Sabic said its net profit in Q1 rose to US$1.45 bln (5.43 bln riyals) in the first quarter of 2010 driven by higher petrochemicals and plastics prices. SABIC had seen a net loss of US$258 mln (970 mln riyals) in the same period of 2009. When compared with the fourth quarter of 2009, SABIC’s profit was also up 18.6% from the 1.22 bln dollars (4.58 bln riyal), since the prices of the company’s products continued to rise. SABIC’s gross profits for the first quarter of this year were US$3.26 bln dollars (12.22 bln riyals). The Saudi Industrial Investment Group (SIIG) which mainly produces styrene reported a net profit of US$38 mln (Riyals 142 mln) in the first quarter of this year, after posting a net loss of US$13 mln (Riyals 50.5 mln) in the same period of last year. The company attributed this good result to stronger petrochemical prices. In Central Europe, PKN Orlen reported first-quarter earnings before interest and taxes will exceed 400 mln zloty (US$139 mln) as Poland's largest oil refiner benefited from rising crude prices. The company said petrochemical sales were little changed at 1.25 mln tons but margins in the segment widened 26% from a year earlier. The company said that apart from oil prices, "the petrochemical segment is the main driver behind earnings. It will show profit for the first time in many quarters." Czech Unipetrol reported expecting its best operating results since Q3-08 due to strengthening margins. In its Q1 forecast the company said it expects an operating profit after mostly reporting losses over the past year and a half. It said “the petchem segment showed improvement in terms of margins and sales held well. This was probably due to the improving industrial output in the Czech Republic.” Figures were not released yet.