Engineering News

Lyondell sees chemical demand reviving
Tue Jun 21, 2005 05:24 PM ET

NEW YORK, June 21 (Reuters) - Global chemical demand should revive later this year after falling in the second quarter, the chief executive of Lyondell Chemical Co., the No. 3 North American chemicals maker, said on Tuesday.

The Houston company produces key chemicals such as ethylene, one of the most widely used petrochemicals and a main ingredient in most plastics.

"We've seen some bumps but ... we think we're very well situated for a very strong finish for the year and then moving to cyclical highs for the next couple of years," Lyondell Chief Executive Dan Smith told the Reuters Energy Summit.

Smith said last year was "the early stages of a cyclical recovery," which led to record profitability in the first quarter of 2005, when Lyondell's sales jumped fourfold and a year-earlier loss turned into a profit.

But late last year buyers began stockpiling chemicals, leading to a current worldwide ethylene surplus of 1 billion pounds, or 3 days worth of supply, Smith said. Their withdrawal from the market helped weaken prices in the second quarter.

In the case of polyethylene, a widely-used form of plastic, a lack of buying erased a large portion of gains from late last year, when polyethylene prices rose about 25 percent, he said.

But the combination of high energy costs and little new production capacity continues to keep supply and demand closely in line, he noted.

"I think we're coming close to the end of this inventory rebalancing," Smith said. "I think it will be clear by sometime in the third quarter and then by the time we're through the third quarter, we think we'll be moving right back up."

Prices for oil and natural gas, the main ingredients of chemicals, continue to surge, with crude touching record highs just shy of $60.

With few new plants starting up, and existing ones dwindling in tough markets like North America, even a little growth underpins the chemical market, Smith noted.

That will help chemical producers regain pricing power lost during the second-quarter, Smith said at the summit, held at Reuters New York headquarters.

In fact, the company is trying to raise product prices roughly 3 percent for July, he said.

"We're pushing prices up. It remains to be seen whether or not they'll hold because, again, that depends on where the demand is at the moment," Smith said.

He said it was too early to tell how third-quarter prices will compare with a year-ago, but sales volumes -- a sign of demand -- are similar to last year or slightly up, he said.

"We're still using up the excess supply around the world and we're headed for cyclical recovery," Smith said.

Source: Reuters

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