Although high energy prices have led to extended troubles for the petrochemical industry, very low stockpiles around the world mean a rebound is inevitable, the chief executive of Nova Chemicals Corp. said last week.
Jeff Lipton told shareholders at the company’s annual meeting in Calgary that the supply-demand balance is crucial for his company, which processes oil and natural gas into ethylene, polyethylene and styrenes used to make an array of plastics and other consumer goods.
“The big issue is that inventories are very low,’’ Lipton said following the meeting.
“Very few of our customers are willing to build inventory because if gas prices come down sharply, or oil prices come down from very high levels, they’ll get caught with high-cost inventory.’’ “So everywhere you look, from Montreal to China, people have low inventories. And if we do see a sharp drop in natural gas or oil costs, I think our customers are going to jump to rebuild inventories and that could start this thing earlier than most people expect.’’ Even if oil and natural gas prices remain at record high levels, Lipton said the petrochemical industry is expected to follow an economic recovery around the world, gaining momentum by next year.
Though its corporate offices are in Pittsburgh, the former Calgary company has major operations in Alberta, where it used to operate as Nova Corp. before a merger with TransCanada PipeLines in the late 1990s. That deal between two Calgary-based natural gas pipeline giants led to the spinoff of Nova’s chemicals business into a separate company.
In 2003, Nova posted net losses before unusual items of $118 million, down from $148 million the previous year.
But the company worked hard at shedding non-core assets. It sold its stake in Vancouver-based methanol producer Methanex last June for an after-tax gain of $61 million. And it sold its stake in a Fort Saskatchewan ethylene storage operation for an after-tax gain of $64 million.
As a result, Nova narrowed its losses to $1 million US last year from $112 million in 2002, while revenues rose to $3.9 billion US from nearly $3.1 billion.
The company was also able to cut debt by $114 million and finished 2003 with $212 million in cash, while renegotiating a $300-million line of credit to improve the company’s finances.
Despite the continued downturn, Nova (NCX-TSX) shares increased 47 per cent on the New York Stock Exchange last year, compared with a rise of 25 per cent for its industry rivals.
“We have delivered on our commitments to reduce risk in a very difficult period and have enhanced our potential to take advantage of the developing global economic recovery through targeted development of higher-margin products,’’ Lipton told shareholders.
Nova’s products are used to make a wide range of plastics, foams and other building blocks for consumer and industrial goods. The company operates 18 plants in the United States, Canada, France, the Netherlands and the United Kingdom.