Petrochemical Industry Sees Record Profits

At a time when most other major U.S. industries are fearing economic fallout from the stock market collapse, the booming U.S. petrochemical industry appears poised to enter its second consecutive year of robust growth and record profits, industry analysts said.

“Petrochemicals will be one of the strongest industries in the American economy next year because of the weak dollar,” said John Dosher, managing director of Houston-based Pace Consultants Inc. “No other U.S. industry is operating at 100% capacity and has such a strong export market.”

Although demand for chemicals is tied closely to consumer purchases of new automobiles, homes and clothing, the threat of an U.S. economic recession in 1988 would have little impact on American petrochemical manufacturers, Dosher said.

The sharp fall in the value of the American dollar, which makes U.S. chemical products cheaper to buy than those made in Japan or the Middle East, would increase exports and more than offset the impact on the U.S. chemical industry from any possible economic downturn, experts said.

Thanks to both the fall in the dollar and relatively cheap crude oil, analysts said the U.S. petrochemical industry will see an increase in 1987 profits of some 20% over the record $13 billion earned last year.

Record Profits Expected

“We expect the companies to have record earnings again in 1988,” said Leslie Ravitz, an industry analyst with Salomon Bros. “Even if there is any softening of demand domestically, the export market could grow.”

U.S. chemical exports could be up this year by as much as 30% over 1986 exports that totaled some $7.6 billion, according to analysts. Much of the growth comes from existing markets in Europe, Latin America and the Pacific Rim countries which import materials to make plastics for automobile parts and household goods.

“The chemical industry has been and continues to be one of the bright spots in the U.S. trade picture,” said Gene Gillis, president of Exxon Chemical Americas, a U.S. and Latin American chemical unit owned by Exxon.

Exxon’s worldwide chemical operations earned $152 million in the third quarter of 1987, up 33% over the year-ago period.

Dow nearly doubled its 1987 third quarter profits with record earnings of $330 million, while DuPont’s third quarter net income rose 32% to $452 million.

“The fourth quarter is assured of having a good climate for the business and likely a record quarter for the industry,” Gillis told Reuters. “But record (industrywide) profits in 1988 are a little less certain because of the general economy and the possibility of a slowdown in consumer demand for new houses and cars.”

The automobile and construction industries are the biggest users of chemical products such as plastics, solvents and glues. Production of each new car in Detroit, for example, requires an average of 190 pounds of plastics and 35 pounds of solvents.

But other petrochemical industry executives are more optimistic about 1988 prospects.

“Our business was expected to be very good in 1988 and there’s a chance it might be even better than we had hoped,” said John Burns, president of Houston-based Vista Chemical Co., which manufactures about 10% of the nation’s supply of polyvinyl chloride, a plastic used in window frames, automobile floor mats and upholstery.

“We’ve run the numbers and even a slowdown in next year’s GNP from 2.5% to somewhat less than 1% growth would affect us very little,” Burns said.

Extensive restructuring programs, absorption of excess manufacturing capacity and mergers among many U.S. chemical firms during the past five years have also contributed to the industry’s improved health.

Ethylene, a basic chemical building block now in short supply, is selling at nearly 20 cents per pound, up five cents over one year ago. Polyvinyl chloride has increased in price by more than 20% over the past two years and inventories of other commodity chemicals such as benzene, propylene and styrene are low, analysts said.

Several U.S. companies such as Vista, Union Carbide Corp. and Atlantic Richfield Co.’s chemical division are already planning to expand existing chemical plants or restart moth balled facilities.