Why the Chemicals segment has been a consistent performer

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Nov. 20 2020, Updated 2:45 p.m. ET

Phillips 66’s Chemicals segment explained

Phillips 66’s (PSX) Chemicals segment consists of its 50% equity investment in Chevron Phillips Chemical Company (or CPChem). CPChem consumes natural gas liquids (or NGLs) produced in the Midstream segment through natural gas processing. It uses the NGLs to produce petrochemicals. The petrochemical products are sold or used as feedstocks to produce plastics and other chemicals.

Chevron Corporation (CVX) co-owns CPChem along with PSX. For more information on CPChem, read the first part in this series.

In 2013, net profit from the Chemicals segment increased 20% to $986 million— from $823 million in 2012. This followed a 15% increase in profits in 2012—compared to 2011.

The increase in earnings in 2013, compared to 2012, was a result of using NGL feedstock. NGLs were priced lower in 2013. NGL feedstock was competitive compared to petroleum-based feedstock like naphtha. Other major factors contributing to the increased net margin were:

  1. Lower interest cost due to early retirement of $1 billion debt
  2. Higher realized margins from polyethylene

The upward trend continued in 2014. In 1H14, net profit from the Chemicals segment increased 38% to $640 million—from $463 million in 1H13.

Volume growth was mixed

In 2013, the company’s sale of olefins and polyolefin increased ~7%. The sale of specialties, aromatics, and styrenics products decreased ~7%.

Lower volume due to increased maintenance activity and higher costs partially stalled the improved growth in earnings.

For more information on the Chemicals segment’s assets and products, read Part 3 in this series.

Key stocks and exchange-traded funds (or ETFs)

Other companies engaged in the refining business include Valero Energy Corp. (VLO) and Tesoro Corp. (TSO). Some of these companies are components of the Energy Sector Select MLP ETF (XLE).

Visit Market Realist’s Energy & Power page to learn more about the industry.

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