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PetroLogistics LP Message Board

  • bluedreamdreamer bluedreamdreamer Dec 22, 2013 2:11 PM Flag

    long term supply outlook for propylene

    PDH claims its 544,000 ton/yr polypropylene production makes it the worlds largest propane dehydrogenation plant

    that is slated to change, however- EPD plans a 750,000 ton/yr pdh plant to commence operation in 3Q'15 on the texas gulf coast; Dow plants a 750,000 plant in freeport, Tx to start up in 2015, and a second plant to start up in 2018; Formasa plastics plans to open a 600,000 ton/yr plant in Point comfort, Tx in 2016; and others may also be planning

    a lot of this new production may be exported. But the big coming expansions could put downward pressure on domestic prices. I understand refineries etc are producing less propylene, as a consequence of the shale/frakking boom. But will output from refineries continue to fall? And fall enuf to offset the coming boom in domestic production from these new plants?

    so, as a potential investor, I would not expect the past year's $1.70 in distribution going forward; $1/yr seems more conservative- but is that conservative enuf?

    what do you long term investors expect over the long haul??

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    • Next year should be great fpr PDH. I will worry about 2015 later.

    • I expect a take over by the big boys. For them to buy this plant is chump change versus having to build one from scratch. Plus look at pdh's stats. ROE is 53%, ROA is 17% Cash flow vs price/ share is 1, PDH can pay of its debt in 1.5 years.

      Sentiment: Strong Buy

    • to asess the potential impact of additional supply on propylene price, the conference call stated that, as ethylene prices fell (and the ethylene to propylene spread increased) during Q3, Lyondell and BASF started up metathesis conversion of ethylene to propylene, and the new supply to market which pressured propylene price. Now sure what increased PGP capacity the Lyondell BASF metathesis production provides, but it does suggest the sensitivity of propylene price to supply increase

    • Zachs reported EPD also plans to build a SECOND pdh plant at a yet to-be-announced capacity and construction time... EPD has has already entered into a long-term agreement to sell output from its first facility, and reportedly has strong demand for the remaining capacity in its PDH unit, attributed to the 38% cut in propylene supplies since 2006 (a consequence of refiners etc switching from naphtha to lighter natural gas liquid (NGL) feedstocks like ethane and propane (with abundant supply from the shale frakking boom), which produce less propylene... The first PDH plant will be connected with the partnership’s existing propylene fractionation plants, its PGP storage facilities, and 102-mile distribution pipeline system and export terminal. Petrologistics lacks this kind of infrastructure so EPD could emerge as a lower-cost producer than PDH, which could pressure PDH's margins beyond 2015 if EPD sells into the domestic market, although as I said above it is likelt to target the export market, given that propylene prices abroad are currently higher than in the US

      Given that the market looks 2-3 quarters ahead, the looming emergence of longer term competition may not be reflected in today's unit price, but worth watching for those with a long term view.

 

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