Low cost feedstock to boost ExxonMobil profits

24-May-05

Economic expansion in Asia has been driving most of the global growth in chemical consumption. Companies like Exxon Mobil are witnessing a surge in profits from the chemical sector- Q1 chemical profit more than doubled to US$1.43bn, compared with a 26% gain for oil and natural gas. Chemicals have generated 18% of the company's Q1 profit, up from 10% year earlier. ExxonMobil Corp, the world's third-biggest chemical company, plans to process more low-cost oil byproducts into chemicals to boost profit in the company's fastest-growing business as demand soars in Asia. The company is modifying some of its 55 chemical plants to turn fuel oil into plastic and rubber, replacing costlier raw materials such as naphtha, which can be more profitably used to make gasoline. ExxonMobil is raising spending on chemical plants faster than on refineries because the company expects demand for chemicals to rise faster than for gasoline and diesel during the next two decades. Chemical plants accounted for 4.3% of the company's total capital budget during Q1, up from 3.9% a year earlier. Refining sector's share of the budget dropped to 13% from 15%. Expansion plans are underway at Singapore, China, Qatar and Venezuela. Building new chemical plants and modifying existing facilities to handle more fuel oil and other low-cost raw materials will probably position ExxonMobil to boost chemical profits. ExxonMobil's ability to switch between naphtha and other oil and natural-gas components insulated its chemical business from the surge in natural-gas prices that hobbled rivals such as Dow Chemical Co and Huntsman Corp, which use gas as their primary raw material. The fuel oil ExxonMobil that is now diverting into chemical production used to make bunker fuel previously.