Times are a'changing for petrochemical industry

Coming off several good years, the petrochemical sector is heading toward narrower margins for three obvious reasons: the Asian financial crisis, an industry-driven cyclical downturn because of rapid capacity expansions, and a modest slowing in U.S. economic growth from the robust 1997 pace.
On the positive side, a moderate slowing of healthy demand is not the same thing as a slump into poor demand, and prices for the gas liquid feedstocks used by many U.S. petrochemical manufacturers are down.
A survey released last month by the Chemical Manufacturers Association (CMA) found that, on a weighted average, chemical company officials project sales revenue to increase 3.6 % in 1998 after growing roughly 4.4 % last year. Sales volumes were projected to grow 5.4 % in 1998, up from 4.9 % last year.
Because the survey was completed in October and November, it's possible that Asia's economic woes have since lowered expectations. But some parts of the Far East "notably China, Japan and Singapore " are holding up, suggesting the Asian flu may not overly ravage even its own region, much less other parts of the world.
For now, prices are trending down for virtually all primary petrochemicals.
The No. 1 petrochemical building block, ethylene, is headed for a glut that may last two years or more, observers say. Propylene, the No. 2 petrochemical and a co-product from ethylene crackers, also is headed for oversupply.
Start-ups of new ethylene crackers last year included U.S. plants of Exxon Chemical Co., Chevron Chemical Co. and Westlake Polymers Corp. This month has seen the restart of Shell Chemical Co.'s ethylene cracker in Deer Park, Texas.
A benchmark contract price for ethylene recently was 24.5 $cents/pound, said Rob Harvan of consulting company Bonner & Moore Associates Inc. It likely will fall as low as 20 $cents by midyear, he said, adding that weakening economies in Asia and elsewhere could cut it to 18 $cents-19 $cents.
If the contracts come in 2 $cents-3 $cents below that 20 $cents target, the difference will be critical, he said. That could determine whether some older, less-efficient plants close and some newer plants cut runs.
Spot prices for aromatics are diving especially fast, with sharp declines seen for benzene, toluene, mixed xylenes and paraxylene. Toluene, like MTBE, tends to dive with gasoline.
A trend toward joint ventures in petrochemicals has not happened as it has in the upstream, refining and gas marketing.
A notable exception was the announcement last year that BASF and Fina will jointly build a huge steam cracker to make ethylene and propylene in Texas -- but such plans are not common.
And there still are plans on top of plans for added capacity. The latest of the many was to be announced at the start of this week, with Shell expected to sign a deal to join with 3 Chinese companies in building a 1.76 billion pound-a-year ethylene cracker at Nanhai in southern China.