EARNINGS WRAP: US petchem profits surge in Q2 as pricing gains offset feedstocks

(Editor’s note: With the second-quarter earnings season nearing its close, HP is recapping the results from major market players in various segments. This is the first in that series.)

The strong gains that began 2011 for US petrochemical and specialty chemical producers continued into the second quarter, with most firms posting significant year-on-year profit increases as higher sales and pricing offset rising feedstock costs.

While raw material costs such as crude oil surged in the first half of 2011, most chemical producers were able to successfully gain the price increases they needed to maintain or boost margins.

In the US, major players are also still reaping benefits from additional natural gas liquids (NGL) supply from the various shale plays, giving them an advantage on global competitors.

Moreover, those mid-continent firms with access to WTI crude oil regularly saved about $20/bbl in costs, relative to competitors who relied on the more expensive Brent.

That has allowed growth to continue. Moreover, in several places, the competitive advantage in the US has prompted considerations for expansions, debottlenecks and even building new capacity.

Here’s a rundown of how several top companies performed.

Dow Chemical
posted a second-quarter net profit of $1.1 billion, up 63% from $659 million a year earlier amid higher selling prices and increased sales volumes within performance products, plastics and chemicals.

Sales surged to just over $16 billion, up from $13.6 billion in 2010. Revenues were particularly strong in emerging markets, where second-quarter sales hit a Dow quarterly record of $4.9 billion.

By segment, Dow’s biggest strength was in plastics, which includes polyethylene (PE) and polypropylene (PP). Plastics registered a sales increase of 30%, led by 20% higher prices and 10% higher volumes.

Revenues also rose by 29% within performance products, which includes amines, epoxy resins, polyglycols, surfactants and fluids.

“Our transformed portfolio, underpinned by our cost-advantaged and flexible operations, is now performing at a new level,” said Dow CEO Andrew Liveris.

“This is fueling higher-growth, higher-margin performance through superior market reach, customer intimacy and innovation,” Liveris added.

Petrochemicals major LyondellBasell saw its second-quarter net income rise to $804 million, up 21.3% from the $663 million it made in the 2010 second quarter.

Sales were $14.04 billion, up 14.6% from $12.25 billion a year earlier.

“During the second quarter, we continued to demonstrate the earnings potential of our company as margins increased over already strong first-quarter levels,” said LyondellBasell CEO Jim Gallogly.

On an earnings conference call, Gallogly said the increased profits were leading to a focus on debottlenecking projects in the US.

Specifically, LyondellBasell plans to debottleneck both its Channelview and La Porte crackers in Texas, as well as several in the US Midwest region.

Those in the Midwest could receive feedstock directly from the Marcellus Shale region, Gallogly said.

Gallogly said LyondellBasell would initially focus on debottlenecking projects, rather than investing in potential new crackers, because they can be completed in a quicker timeframe.

continued the positive trend, posting second-quarter earnings from downstream operations of $564 million – up 30% from the previous year.

Chevron officials cited improved margins for refined products and increased earnings at the company’s Chevron Phillips Chemical (CPChem) joint venture.

ConocoPhillips, Chevron’s partner in that joint venture, reported that its second-quarter chemical earnings rose 44% year on year to $199 million.

ConocoPhillips cited higher margins and volumes within olefins and polyolefins.

Earlier this year, CPChem said it was conducting a feasibility study regarding the building of a world-scale ethane cracker in the US Gulf region.

On the specialty side, DuPont posted a second-quarter profit of $1.23 billion, up 5.2% year on year amid stronger sales prices and volumes as well as a positive currency impact.

Second-quarter sales rose 19.1% to $10.3 billion, led by 11% higher local prices, a 2% increase in volumes and a 3% rise in currency benefits.

Like Dow, sales were particularly strong in emerging markets, rising 29% in the quarter.

DuPont CEO Ellen Kuhlman said her company was increasing its earnings outlook for 2011 based on a strong performance year-to-date and confidence in second-half business plans.

Also in specialty, Eastman Chemical had earnings of $211 million in the second quarter, up 43% year on year from $148 million in the 2010 period.

Sales were $1.9 billion, up 27% from $1.5 billion a year earlier. By segment, performance chemicals and intermediates led the way with a 35% year-on-year increase in sales.

Volume increases resulted from growth in plasticiser product lines, increased demand for acetyl chemicals and the restart of an idled olefins cracker in Texas.

Eastman also cited rising end-market demand primarily in the packaging, transportation and durable goods markets.

Eastman also increased its selling prices across most segments, due in large part to rising raw material and energy costs, the company said.

Those were partly mitigated by Eastman’s ability to crack low-cost propane into propylene, company officials noted.

All of Eastman’s specialty segments reported rising second-quarter sales.

Stay tuned to the HPInformer blog over the next week for similar earnings recaps of the refining and construction segments.

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