US gasoline surged 6 percent to two-year peaks as flooding and damage from Tropical Storm Harvey shut nearly a quarter of U.S. refinery capacity
KUALA LUMPUR: The closure of 61% of US Ethylene plants at the height of Tropical Storm Harvey in the Gulf of Mexico has had an effect on the supply-demand balance and will likely increase product prices in the near future.
" Using PetroChemWire’s data that 61% of US Ethylene plants are to close for two weeks, this equates to a total of 1.2mmt of Ethylene production loss, or 0.5% of global annual consumption. This is the best case scenario as we expect supply-line and other logistics damage to hinder the ramp-up process.
"Therefore, we estimate the total production loss of Ethylene could range between 1.2 to 2.4 mmt, equaling to 0.5 to 1% of global consumption," said Maybank Investment Research in a research report on Thursday.
September to November is a peak season for petrochemicals as factories ramp-up production rates ahead of Christmas. The closure of US plants, however, means petrochemical producers can take the opportunity to push-up prices while exporters send their shipments into the US.
Ethylene is the backbone of the chemical industry, accounting for 40% of global sales, according to Maybank Investment Research.The US produced 22% of the global supply of Ehtylene in 2016.
Maybank Investment Research says the episode boosts its Positive stance and Buy calls on PChem and Lotte Chemical Titan.
"We believe this will benefit PChem and to a lesser extend Lotte Chemical Titan. Both companies produce their own Ethylene supply but Lotte however procures Ethylene from third party for its Indonesian operations — which accounts to 44% of its total Ethylene consumption.
"Therefore this business unit will suffer from higher raw material cost and incur margin contraction," says the research house.
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