North American Chemical Industry Prepares to Finish Year Stronger Than Expected

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Researched by Industrial Info Resources (Sugar Land, Texas)--Even as hurricanes and tropical storms remind chemical producers along the Gulf Coast that it's still summer, marketers and forecasters are anxious to know what industrial spending is left to begin construction as the year comes to a close. Based on active projects identified for the Chemical Processing Industry (CPI) as part of Industrial Info's North American Project Database, the fourth and last quarter of the year holds the potential for $1.9 billion in capital and maintenance project kickoffs. Despite continual news reports of a worsening economy, this is an increase over the last quarter of 2007, when capital and maintenance project activity totaled an estimated $1.5 billion.

A great deal of this increased level of spending and forward momentum is because of several major capital projects finally getting under way that have been in the planning phase for many years. Canexus Limited Partnership (Calgary, Alberta) plans to begin construction on an estimated $200 million technology conversion project at its North Vancouver, British Columbia, chlorine site. INVISTA Incorporated (Wichita, Kansas) expects to begin a $200 million expansion in November at its polyester intermediates plant in Wilmington, North Carolina. These projects have been in the planning stage for many years.

A relatively new project that could begin construction this fall is a propane dehydrogenation plant by PetroLogistics LLC (Houston, Texas) at the former ExxonMobil (NYSE:XOM) (Irving, Texas) olefins cracker facility in Houston. PetroLogistics will spend an estimated $300 million and utilize many of the existing ethylene unit assets at the site, as well as install some new Lummus CATOFIN technology to produce an estimated 554 million metric tons per year of propylene.

Approximately $220 million of the spending identified to begin this fall is for planned plant maintenance turnarounds. More than $1.2 billion of the identified spending has been capitally funded, leaving an estimated $350 million in planned project activity to still be decided upon in the coming months. Even if half of that activity were to be canceled or postponed, this would still put spending ahead in a year-over-year comparison of quarters.

The CPI has been mostly successful in passing along the extreme high costs of feedstock, energy and transportation as price increases this year, aiding industry majors in maintaining or at least avoiding major erosion of their bottom line.

The cost of crude oil began a strong retreat in the last month. Although this is not expected to be a factor that adds any short-term strength to the CPI market, the effects of lower-cost crude will hopefully help consumer markets that influence the CPI over a longer period of time.

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