Chemicals, plastics. (Industry Forecast 1990)

CHEMICALS - PLASTICS

WAS IT ONLY LAST YEAR THAT profit margins for ethylene were well over 50% and plants were straining to meet demand? Then Lyondell Petrochemical boosted capacity from 2.8 billion pounds a year to 3.5 billion. And Quantum Chemical, which buys two billion pounds of ethylene a year, began building a plant to supply its own (FW, Mar. 21). Meanwhile, even more capacity started coming on in Europe and Asia.

Today, ethylene is down from 34 [cents] a pound to 24 [cents], "and it's on its way to 15 [cents] over the next 18 months," says bearish Oppenheimer analyst George Krug.

"You're looking at three to five years, at least, where there is going to be excess petrochemical capacity worldwide," says Nicholas Filippello, chief economist for Monsanto. The stock prices of Dow (p/e: 6) and Union Carbide (p/e: 5) already reflect the poor prospects for petrochemicals.

Bad news for firms that leveraged themselves to the gills just in time for falling prices. Quantum Chemical, which has negative shareholders' equity, has watched polyethylene fall from 52 [cents] per pound to 37 [cents]. Vista Chemical, also with negative equity, is hurt by lower ethylene and PVC prices.

But the price slide in commodity chemicals like benzene, styrene, methanol, chlorine and polyethylene is good news for downstream firms like DuPont and ...