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Prudential Securities: European heat wave could reduce market supplies of chemicals, refined products

By OGJ editors
HOUSTON, Aug. 18 -- A European heat wave has began to restrain chemical and refining operations, and one analyst says that if the heat wave continues and more plants reduce operating rates then market supplies possibly could become reduced.

Prudential Securities Inc. analyst Andrew F. Rosenfeld of New York said this emerging trend potentially could provide a "small positive" for the global chemical and refining industry. His comment came in an Aug. 14 research note.

The heat wave has reduced water levels on some river and lakes. BASF AG and Veba Oil, Refining & Petrochemicals GmbH (VOPR), both of Germany, have declared "force majeure" on a portion of their ethylene production.

BASF said the "force majeure" was due to low water levels and high water temperatures on the Rhine River. VOPR said its outage was caused by mechanical problems.

Both refineries and chemical plants use water as a coolant to help maintain heat balances for steam boilers and other operational requirements. When water is unavailable at the correct temperatures or volume, then it is likely that operating rates must be reduced.

The "force majeure" declaration allows a company to place its customers on allocation without recourse from breach of contract.

"It is likely that the success of the recent August polyethylene price increase in Europe is partially due to this issue," Rosenfeld said. "In regards to the refiners, we believe if the low water levels cause reduced operating rates then exports from Europe to the
US could decline and improve refining margins on the East Coast. European imports have accounted for approximately 25% year-to-date of US total product imports and 3% of total US product demand."

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