North American petrochemicals demand seen strengthening in third quarter
Demand for North American petrochemicals like plastic resins continued to strengthen at the start of the third quarter, a top official from a leading petrochemical company said while discussing earnings.
The industry is enjoying higher margins and the need to build up inventories will help new production capacity coming online to be absorbed, according to commentaries shared in past weeks by some of the industry's top decision makers. Polyethylene (PE) exports to Asia will not see bigger volumes until inventory levels increase, officials said.
“As of this week, our August order volumes for PE and PP (polypropylene) in the Americas segment are stronger than any prior month in 2021,” said Bhavesh Patel, CEO of LyondellBasell, on July 30, during the company’s second quarter earnings call.
Fertilizer producers, another North American downstream industry, is also seeing strong demand and pricing.
Low inventories
“High demand, low downstream inventories and customer backlogs are expected to continue and provide ongoing support for strong polymer margins,” Patel said, according to a transcript of the call by Motley Fool.
While consultants are predicting margin compression for ethylene “recent outages have caused prices to quickly rebound and demonstrated that markets remain relatively tight,” he added.
LyondellBasell's earnings before interest, taxes, depreciation and amortization for the April-June period of $3 billion was an improvement of more than $1.4 billion relative to the first quarter.
“Persistent consumer and industrial demand has met tight markets, leading to seven consecutive months of North American polyethylene contract price increases totaling more than $900 per ton,” Patel added.
High operating rates
LyondellBasell's cracker operating rates increased to 93% or “about five points above the second quarter industry average,” Patel said.
The oil refinery side of the business has yet to see higher running rates.
Reduced margins for refined products “is mostly due to lagging demand for jet fuel associated with business and international travel,” Patel said.
If demand for diesel and gasoline improves refining margins, the company’s refinery may return to profitability by year’s end, he said.
Markets tight into next year
“We expect markets for PE and PP will remain tight into next year,” Patel said. That period coincides with planned startups.
“Capacity expansions are coming online in our industry during a period of extraordinary demand growth and enabling an orderly absorption of this new capacity into the market,” he added.
Companies adding capacity include ExxonMobil and a Total and Borealis venture.
“We are starting to restore inventories back to more normal levels. They're better than they were , or higher than they were back in the first quarter, but still not above historic levels,” he said.
“We're not positioned to do a lot of exports. That will require another level of inventory, which we don't have today,” he added
Third quarter polyolefin sales should be higher than in the second quarter as production increases and sales improve, he said.
Sasol JV doing ‘extremely’ well
“And then the Sasol JV has done extremely well with the merchant ethylene that we sell from that and the ethane to polyethylene cash margins being where they are today,” Patel said.
“Between operating cash flow and the expected tax refund on that investment, we expect to recover or get back half of our investment in 2021,” he added.
LyondellBasell bought the asset in 2020 after holding negotiations that coincided with a period of sharp instability related to Covid-19 lockdowns,
Westlake Chemical posts record sales
Westlake Chemical Corp. posted on Aug 6 records on both quarterly sales of $2.9 billion and quarterly income of $522 million primarily “driven by significantly higher sales prices and margins.”
All major products “including PVC resin, polyethylene, caustic soda and our building and construction materials” saw price increases during the quarter ended June, Westlake said.
Price increases were partially offset by lower polyethylene sales volumes. Demand was robust throughout the period, the company said said.
The company managed to increase volume for its vinyl segment thanks to “strong demand in North American residential construction and the repair and remodeling markets.”
Investments
A Westlake Chemical subsidiary bought on July 6 a Tennessee-based polyvinyl chloride (PVC) fittings producer. Global Legal Chronicle said the price was $252.5 million.
Westlake Chemical Corp announced on June 20 a definitive agreement with Boral Industries to buy for $2.15 billion in cash Boral’s North American, a roofing materials and shutters producer.
Boral’s North American business has 4,600 employees at 29 sites in the U.S. and Mexico.
Company CEO Albert Chao has said the company is "creating new platforms for continued future growth" through the purchases.
CF Industries reports strong results
CF Industries reported on Aug. 10 during the second quarter conference call that strong nitrogen demand and lower overall production have supported much higher fertilizer prices than in recent years.
“At the same time, energy spreads between North America and high-cost regions have expanded considerably, increasing margin opportunities for our cost advantaged network,” the Chicago-based company said.
The first-half financial results were the strongest in six years, it said. CF officials expect to see similar strength into next year.
Earlier in July Dow reported its best quarterly earnings ever.
By Renzo Pipoli