Petrochem industry to see strong profits in Q4 2006 to 2008

08-Nov-06

The petrochemical industry is to see a period of strong profitability for a peiod of almost two years, from the fourth quarter of 2006 through 2008, as per a forecast by Nexant ChemSystems. This boom had defied expectations in 2003 that the 'good times' of profitability would dry up by 2005. An extended period of profitability had also been possible despite a dramatic rise in feedstock prices of ethane, propane and natural gasoline since 2003. Nexant's extended outlook of industry profitability was forecast mainly due to a lack of sufficient new capacity to be built in 2007 and 2008, which will keep existing petrochemical plant operating rates high. This premise assumed expected construction delays in the Middle East and China. Construction delays in all regions will result in very little new capacity starting up until late 2008 or early 2009. About 23 million tpa of new capacity has been planned in the Middle East over 2004-2010, but only an estimated 16 million tpa would actually be built within this timeframe. Olefins and polyolefins would lead an industry-wide jump in profitability, as per predictions. This jump was projected to begin at the end of 2006 and peak in 2007, and be characterized by high operating rates, high prices and wide margins. A downturn was projected to begin in 2009 based on a large increment of new capacity expected to start up. Meanwhile, global petrochemical operating rates were already high and inventory was low in most countries, holding up profitability forecasts. China continued to increase imports of virgin resin through the second half of 2006, and Asian prices would continue to trend upward as a result. Shortages in polyolefins supply was at the same time expected to result in inter-polymer substitution, such that a climb in prices of other polymers would arrive later after a four to six month lag. High oil and gas costs would keep olefins below historical profitability levels, however. Global average polyethylene demand growth was also forecast at about 5% for the next three years, curtailed by high prices, supply constraints and high energy costs.