Engineering News

Plastics to Rise After Quake Shuts Plants, Alembic Says
Mar 11, 2011 4:45 PM CT

Global prices for ethylene and related plastics probably will rise after the strongest Japanese earthquake on record shut some chemical plants and curbed supplies, Alembic Global Advisors said.

Japan accounts for about 5.5 percent of global production capacity for ethylene, the main ingredient in plastics such as polyethylene, and 8.5 percent of global exports, Hassan Ahmed, a New York-based analyst at Alembic, said today in a report. Prices for naphtha, a raw material derived from oil that’s used to make 90 percent of Japan’s ethylene, may fall, he said.

“We would expect ethylene supply/demand balances to tighten on the back of this tragedy lending support to further price increases and margin expansion, particularly keeping in mind that naphtha prices should ease,” Ahmed said.

The 8.9-magnitude temblor caused a seven-meter-high (23- foot) tsunami that killed hundreds as it swept across towns on the coast north of Tokyo. Mitsubishi Chemical Holdings Corp. (4188) shut its Kajima plant after the earthquake disrupted power, the Tokyo-based company said. At least two chemical plants in the area caught fire and others were shut, according to ICIS, an industry news and pricing service.

Dow Chemical Co. (DOW), LyondellBasell Industries NV (LYB) and Westlake Chemical Co. are among the U.S. beneficiaries of wider ethylene margins, Ahmed said. He rates Dow and Lyondell “overweight” and Westlake “neutral.”

Dow’s plant in Soma, located on the coast about 200 miles (322 kilometers) north of Tokyo, was flooded, Gregory Baldwin, a spokesman for the Midland, Michigan-based company, said today. The company has no reports of injuries or environmental incidents at the plant, which makes ion exchange resins for water treatment, he said.

Japan accounts for 4.1 percent of global polyethylene capacity and 2.2 percent of exports, and it has 5.5 percent of polypropylene capacity and 4 percent of exports, he said.

Source: Bloomberg

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