Feedstocks…Who can predict?

Feedstocks for NOVA Chemicals’ styrenic polymers are based on crude oil and natural gas. Benzene is derived from the fractional distillation of crude oil and ethylene primarily from natural gas. Benzene and ethylene are the raw materials of styrene monomer, a major component of our DYLARK formulation.

Crude oil prices have been especially volatile during the last several months, ranging from a low of $19.27/bbl in December 2001 to a high of $39.99/bbl at the end of February 2003. The main cause of current price volatility is the instability in the Middle East. Since the end of war in Iraq, continuing political instability in that region, coupled with concerns in Venezuela and Nigeria, contribute to the volatility of crude oil prices. Today, the trading range is approximately $31.00/bbl. This price is lower than the recent high levels, but up substantially from a year ago.

Natural gas prices demonstrate similar fluctuations. Natural gas peaked this year in February at close to $10.00/mm btu. Demand remained very strong due to the long and harsh winter season. Summer demand is driving high prices based on the demand of electricity generation requirements. Today, the trading range is approximately $5.00/mm btu, nearly double from more historical levels of $2.50/mm btu.

We experience the impact of these issues daily. Each stop at a gas station is a reminder of the escalating gas prices and the monthly heating/cooling bill is an unwelcome guest in our homes. However, we pay the elevated prices because gasoline and natural gas are vital elements to our standard
of life.

Crude oil and natural gas are also vital elements to the chemical industry. Stable low-cost raw materials are important to the chemical industry. Feedstock price increases require resin price adjustments to maintain healthy business conditions. Current plastic resin prices are on the rise, not out of a demand for margin increases, but to offset the rapidly increasing feedstocks costs.

Who can predict what changes the next few months will bring? Coalition forces work to stabilize Iraq, its current political climate and establish a new government. These are beneficial steps in restoring Iraq’s oil production to its pre-war output level at 2.5 million bpd. In addition, Venezuela and Nigeria oil exports are back online for now. While still tight, oil is more favorably balanced, but remains costly in the market compared to historical values. Additional gas drilling rigs are set up to increase the natural gas supply. As world events continue to settle, perhaps oil and natural gas prices will return to more moderate levels in the upcoming months.