Petrochemical market review of Trinidad

Jul 25, 2004 02:00 AM

Tight conditions and relatively high prices characterized international markets for both methanol and ammonia over the first half of 2004, while the global powerhouses signalled their presence in the Trinidad market with changes to corporate identities.
The ammonia market began the year on a high of $ 305/ton. It experienced some weakening in the first quarter because of sluggish demand in the USA to bottom out in April at $ 166/ton. However, prices rebounded in the second quarter of the year to reach $ 250/ton in early July, on account of a surge in US gas prices to more than $ 6.00 /mm Btu, which forced some capacity further closures in the USA.

A shortfall in supply was aggravated by plant turnaround activity in Trinidad and the Soviet Union. Strong demand in Brazil also contributed to the tight market conditions. Prices are forecast to trend downwards in the second half of the year as CNC's Nitro 2000 plant comes on stream in August.
But this new production may well be offset by further capacity closures in the USA if gas prices remain in the $ 5.60-$ 6.00 range. However, new capacity in countries such as Egypt, Iran, China and Saudi Arabia due to open next year may hurt prices.

Meanwhile, the market conditions are having contrasting fortunes on producers in the US compared with those outside the US. For non US producers high prices are yielding windfall profits to the ammonia fertilizer producers in the current fiscal year. One such company is Yara International, which was spun off of from Norsk Hydro and assumed its new name internationally and locally, in March this year.
Yara, now the world's biggest fertiliser maker, has declared a 56 % rise in profits for the second quarter 2004. In contrast capacity shutdowns are increasing in North America. In an effort to buck the trend in high gas prices, Royster Clark Nitrogen, a small producer in the state of Illinois, has embarked on a project aimed at switching to a revamped coal technology. If successful, the company expects thenew technology to produce over 100,000 barrels of extra clean diesel fuel as by-product of the process.

Could this mark the start of a fight back for the US industry?
Methanol price in the first half averaged $ 254/ton, marginally lower than the average of $ 272/ton recorded in the first half of 2003 but 22 % greater than in the last half of 2003. Price movements in the last semester reflect the continuation of a price spiral that began in September 2003.
The main drivers behind the buoyant market conditions have been high US gas prices which have been setting the floor for methanol pricing in the US market and inventory deficit positioning major markets. A reversal of price trend can be expected in the second half of the year as two large plants come on stream in Trinidad and Iran. Demand is expected to remain flat for the next few years as projected loss of derivative demand for MTBE in the US is offset by growth of other derivatives across the world.

Methanex, the world's largest producer andtrader of methanol, formally announced its presence with the formal adoption of the Methanex name on the Titan/Atlas Complex. These plants can assume greater significance in the Methanex network because its facilities in New Zealand are under threat from a shortage of gas supply.
It is reported that Methanex only has sufficient gas to run its plant at half capacity. In order to protect the long term viability of its asset Methanex has entered into an agreement with two oil exploration companies to explore and drill gas prone acreage off New Zealand. Methanex will have exclusive rights to purchase any gas that is found.

This strategic initiative begs the question whether such a strategy could or would be pursued by petrochemical companies in Trinidad as the supply situation becomes tighter with the advent of each LNG train?
Given the dynamic nature of changes in the industry over the last five years, such a possibility should not be ruled out.

Source: Petroleumworld
Market Research

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