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ETHYLENE MARGINS LIKELY TO STAGNATE, SAYS WRIGHT KILLEN

March 2, 1992

Recovery of ethylene cracking margins on the U.S. Gulf Coast isn't likely before 1994, Wright Killen & Co. predicts. Lingering U.S. economic weakness and surplus capacity resulting from start-up of two Gulf Coast ethylene plants will keep downward pressure on prices through this year, the Houston firm says. Through 1991, ethylene margins decreased sharply for all three primary feedstocks. Wright Killen says the steep declines began because of quick resolution of the Persian Gulf war.

Recovery of ethylene cracking margins on the U.S. Gulf Coast isn't likely before 1994, Wright Killen & Co. predicts.

Lingering U.S. economic weakness and surplus capacity resulting from start-up of two Gulf Coast ethylene plants will keep downward pressure on prices through this year, the Houston firm says.

Through 1991, ethylene margins decreased sharply for all three primary feedstocks. Wright Killen says the steep declines began because of quick resolution of the Persian Gulf war.

By December 1991, cash margins had decreased to less than 50% of the year's peak margins posted in January and February. Ethylene plant operating rates also fell last year to average about 86% at yearend from 95% utilization in the first quarter.

Wright Killen figures peg Gulf Coast ethylene margins in fourth quarter 1991 at an average:

$4.91/lb for ethane-propane mixed feedstock, down from an average $13.60/lb in first quarter 1991 and a year long 1990 average of $11.87/lb.
$6.52/lb for light naphtha feed, down from $15.51/lb in the first quarter and $11.98/lb in 1990.
$3.68/lb for atmospheric gas oil feed, down from $15.37/lb in the first quarter and $14.48/lb in 1990.

Early in 1991, U.S. petrochemical producers consuming ethane-derived domestic ethylene feeds were recording significant cost advantages over non-U.S. producers using naphtha-based feeds, Wright Killen says. Cracking margins, which were sliding during the first 7 months of 1990, rebounded sharply in August 1990 when world oil prices surged following Iraq's invasion of Kuwait.

Resulting export opportunities for U.S. produced ethylene boosted Gulf Coast operating rates.to nearly 100%. But oil prices plummeted in spring 1991 when coalition forces began sweeping Iraq's army from Kuwait, erasing the advantage of ethane feeds. Ethylene margins began a steep decline.

Among contributing factors, lack of economic growth in the U.S. has caused demand to stagnate while too much capacity has resulted in flat utilization rates for ethylene plants.