NOVA Chemicals advises reduced earnings for third quarter
Pittsburgh, Pa – NOVA Chemicals Corporation announced today that earnings for the third quarter of 2001 will, as expected, be worse than the second quarter. The third quarter loss is estimated to be between $0.75 and $1.00 per share compared to the company's second quarter loss of 27 cents per share.
Most of the decline is related to three specific areas. First, the cost impact of the commercialization of the new Advanced SCLAIRTECH™ (AST) polyethylene plant will be felt for the first time in the third quarter. AST fixed costs, depreciation and interest expenses will total approximately $16 million after-tax for the quarter, and margins on start up and trial production volumes will be negative.
Second, the company will see a reduction in ethylene co-product volume and pricing during the third quarter. Volumes will be down as a result of reduced demand and the Corunna, Ontario flexi-cracker once in four year turnaround. While maintenance and fixed costs associated with the six week effort are accrued over a four year period, associated revenue losses will impact third quarter earnings.
Third, operating earnings from the company’s 29 percent share of Methanex Corporation are also expected to fall.
Jeffrey M. Lipton, NOVA Chemicals President and CEO indicated during the company's second quarter earnings conference call, held on July 25, 2001, that July and August revenue would be “horrible” as polyethylene and polystyrene customers shut down facilities for extended summer outages and minimize purchases in expectation of further reductions in resin prices.
Polyethylene prices fell during the third quarter. "We experienced severe price competition led by the largest producers in the industry, and had no choice but to meet their initiatives head on," said Lipton. “However, the polyethylene price decline was offset by a very significant decline in Alberta natural gas costs. In fact, natural gas prices fell as low as $1.67 per mmBTU last week.”
According to Lipton, with relatively stable crude oil and naphtha prices, NOVA Chemicals’ Joffre ethylene and polyethylene costs will return to very advantageous levels compared to U.S. Gulf Coast and Asian competitors.
“We believe that our Olefins and Polyolefins business hit bottom in July,” said Lipton. “We expect polyethylene margins to improve over the course of this year. With rapidly declining Alberta feedstock costs and some firming in market demand and pricing, we should outpace the rest of the North American industry as we begin to recover profitability.”
Lipton added, "Results from our Styrenics business remain very poor and will be slightly worse in the third quarter than the second quarter. However, the business also seems to have bottomed in July. Demand and margins for polystyrene appear to be improving in Europe. Hopefully we will see the same thing in North America and Asia in the not too distant future."
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