Chemical Cycles and the Outlook for 2006
This presentation is the property of its rightful owner.
Sponsored Links
1 / 17

Joseph Chang Editor PowerPoint PPT Presentation

  • Uploaded on
  • Presentation posted in: General

Chemical Cycles and the Outlook for 2006 ISM Chemical Group Mid-Winter Conference, Las Vegas February 24, 2006. Joseph Chang Editor. Cycle upturn will continue in full swing. Mostly true. Further profit gains for commodity group, but easy money’s been made in stocks. On the money!.

Download Presentation

Joseph Chang Editor

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.

- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript

Joseph chang editor

Chemical Cycles and the Outlook for 2006ISM Chemical GroupMid-Winter Conference, Las VegasFebruary 24, 2006

Joseph Chang


Forecasts from february 2005

Cycle upturn will continue in full swing

Mostly true

Further profit gains for commodity group, but easy money’s been made in stocks

On the money!

Specialty chemicals are next to advance—both in profitability and stock prices


Forecasts from February 2005



Bullish case the best is yet to come

Bullish CaseThe Best is Yet to Come!

  • Supply/demand to stay tight after years of underinvestment

  • Steady demand growth with consensus US GDP forecasts of 3.4% for 2006

  • Gulf Coast rebuilding

  • Fed rate hikes to halt

  • Energy prices to stabilize or fall

  • Low inventories

  • Middle East capacity delays

  • Large number of planned maintenance outages

Bearish case the party s over

Bearish CaseThe Party’s Over!

  • New global capacity coming on in 2006 in China and Iran

  • Capacity creep to take advantage of high prices

  • Large price gap between US and Asian spot prices

  • Shifting global trade balance to topple upcycle

    • Declining US exports, increasing imports

  • US supply/demand to normalize after Hurricane-related disruptions

Wall street crystal ball

Wall Street Crystal Ball

Source: First Call

*Prices as of close of Jan 12, 2006

**Based on estimated 2006 EPS

Psychology is key to predicting cycles

Psychology is Key to Predicting Cycles

  • Cycles derived from human nature

    (FEAR vs. GREED)

  • Contrarian approach needed

Prior projections in 2000 why the peak never came

Many analysts expect the next

peak to occur in 2002 or 2003, and be predominantly monomer driver. By this time NOVA

Chemicals will have approximately 2.5 times the polymer production capacity we had in


Our growth, through

construction and acquisition, has been timed to take full advantage of the expected

peak in the earnings cycle.

Prior Projections in 2000Why the Peak Never Came

Source: Nova Chemicals

Psychological profile 2003 harbinger of the peak to come

Psychological Profile 2003Harbinger of the peak to come!

Contrasting 2003 with 2000

  • Much less talk about the coming peak


  • High oil and natural gas costs

  • Companies struggling financially

    • Lack of North American projects in the works, low level of capital expenditures

      (Slide from CMR Speech 9/3/03)

Capital spending as of depreciation major commodity chemicals

Capital Spending as % of DepreciationMajor/Commodity Chemicals

Source: CMR

Steel industry capx as of depreciation

Steel Industry CAPX as % of Depreciation

Us steel x

US Steel (X)

Source: Yahoo! Finance

Dour mood in mid 2003

Dour Mood in Mid-2003

“In the previous ethylene trough of 1991 to 1992 and the peak of 1995 to 1996, US chemicals have been fortunate enough to enjoy a favorable oil to natural gas price ratio. Those lucky days seem to have gone. Higher ethylene feedstocks could mean that cash margins at the next cyclical peak are lower than in previous peaks.”

June 2003

“The US is the highest cost ethylene producing region in the world at current natural gas price levels. Directionally, we expect the North American petrochemicals industry to become a high-cost globally uncompetitive producer serving a large local market.”

June 2003

Source: CMR

Nova chemicals ncx

Bearish Forecasts

Jun 2003

Nova Chemicals (NCX)

Source: Yahoo! Finance

Early 2005 longer and stronger


“We continue to believe that staggered ethylene/chlor-alkali/styrenic cycles will create a LONGER, STRONGER peak.”

January 28, 2005

“We see a LONGER, STRONGER ethylene peak extending into 2007.”

December 10, 2004

“We expect the coming peak to be LONGER and STRONGER, reminiscent of the 1988-89 peak.”

January 6, 2005

Source: CMR

Nova chemicals ncx1

Bullish Forecasts

Dec-Jan 2005

Nova Chemicals (NCX)

Source: Yahoo! Finance

Conclusion upcycle intact

Conclusion: Upcycle Intact!

  • Wall Street bulls and bears battle it out

  • Investors skeptical

  • Valuations appear low

  • Companies positive, BUT CAPX REMAINS LOW

  • Healthy amount of fear

  • Specialty chemical prices and stocks to move higher along with commodities

Joseph chang editor

Thank You!

Joseph Chang


ICIS – Chemical Market Reporter

360 Park Avenue South, 12th Floor

New York, NY 10010

T: 212-791-4224

E: [email protected]

  • Login