INDUSTRY &. BUSINESS

Petroleum and Rubber Stocks Under Pressure Since Midyear Note: June 3 0 , 1 9 5 7 = 100

• M U U Petroleum io.ni Rubber ι ι SEC Composite 110

100

90

80

70 6/30/57 7/12 8/238/30 11/15 11/2912/6 12/201/3/581/101/171/24 2/14 2/21

Heavier Going in Oil and Rubber Earnings of petroleum and rubber producers felt the sting of recession last year; inventories pose problem

JL w o MAJOR SEGMENTS of t he chemical process industries ran into some heavy weather last year. The results show u p in preliminary earnings statements from various firms. Although dollar volume generally held up well, profits in most cases skidded in both indus­tries ( see table ) .

For the most part, too, the decline can be laid to the latter par t of the year. Oil refiners, for instance, started last year at a fast pace; midyear results were in most cases well abead of the year before. Even by then, though, clouds had formed on the horizon in the form of higher operating costs and softening prices.

Business problems are mirrored, also, by Wall Street's valuation of rubber and oil shares. Stock prices soared to a bull-market high in the optimistic glow of last July. Since then, investors have watched them retreat t o the lowest levels since 1956 (see char t ) .

• Pa ins of Oversupply. The end ing of t h e Middle East dislocation early last year left the petroleum industry wi tb an oversupply situation, Sinclair pres ident P. C. Spencer points out. Prices of refined products, as a result , b a v e been depressed t o a point "at which a satisfactory margin of profit cannot b e realized/ ' Thte problem has b e e n compounded, Spencer adds, by lagging domestic demand resulting from the dip in the nation's economy, by a severe cutback in orders from the a rmed services, and by increased labor and other business costs.

Jersey Standard cites still other fac­tors. Despite a nearly 10% gain in gross revenues, its earnings were h i t by bigher operating costs and by a 26%- rise in exploration expenses, as well as by charges in connection wi tb boosting its refining operations. Con­tinental, for its part , blames lowered earnings on increased drilling costs,

lower crude production, and depressed prices.

The pressures of weak prices, exces­sive inventories, and an oversupply of crude continue. And tbe period of adjustment since tbe Suez crisis is now accentuated by the general business downturn.

With prices of most refined products now well below their levels prior to the advance of crude oil prices in Jan­uary 1957, crude prices too have been under pressure. Cuts of 10 to 15 cents a barrel have been common recently. For this month, moreover, the Texas Railroad Commission has slashed al­lowable production to nine days ' out­pu t (2.5 million barrels a day, compared vvith a rate of 3.8 million barrels a year ago during the time of high demand from Europe) to reduce excess stocks. Yet stocks are still expected to be ex­cessive at t h e end of the month.

Operations also have been cut back by many refiners—but the glut of re­fined products continues. Gasoline stocks hit an all-time high of over 210 million barrels last month, up 4r/< from a year ago. Fuel oil inventories, too, continue well above year-ago levels. And refineries last month were operat­ing at only about 829£ of capacity, ac-

M A R C H 3, 1958 C & E N 2 7

INDUSTRY & BUSINESS

Earnings Lagged Last Year for Oil Producers

Atlantic Refining Continental Oil Phillips Petroleum Snell Oil Sinclair Oil Socony Mobil Standard Oil (N.J. ; Standard Oil (Ohio) Sun Oil

Net Income (Millions)

1957 S 3 5 . 7

^ 6 . 7 9 6 . 2

135 .0 7P-80 ^ 2 0 too

2 3 . 9 4:7.5

1956 S 4 7 . 2

51 .8 95 .2

135.8 91 .1

2 4 9 . 5 808 .5

26 .6 56 .2

. . . and Most Rubber Firms Dayton Rubber General Tire Goodrich Goodyear Seiberling Rubber U- S. Rubber

1 . 6 1 1 . 3 3 9 . 4 6 4 . 8

0 . 9 2 9 . 7

2 . 6 10.9 4 3 . 8 62 .5

1 . 1 3 1 . 9

Change from 1956

- 2 4 % — 10 + 1 - 1

- 1 2 to - 1 3 - 1 2 - 1

- 1 0 - 1 5

- 3 8 -h4 - 1 0 + 4 — 10

- 7

« « ·

Earnings/ Share 1957

$3.82 2.38

4.46 5.20 4.62 4.05 4.79 4.17

1.59 2.12 4.40 6.12 1.75 4.27

1956 $5 .11

2 .65 2 .77 4 . 4 9 6 .17 5 . 7 0 4 .11 5 .35 5 .22

2 . 9 9 2 .30 4 . 9 0 5 .90 1.99 4 . 7 4

cording to American Petroleum Insti-tuteT down from nearly 90^« at the same time last year.

To combat excess stocks, Standard of New Jersey president M. J. Rath-bone said last mon th that t h e industry should make further cuts in processing c rude so that supply can be balanced wi th demand. A general c u t in the price of crude, l i e cautions, can only "aggravate the situation ra ther than alleviate it."

Also calling for a "drastic cutback in the rates of n e w supply a n d refinery operations" is Chase Manhat tan Bank. In its latest petroleum review, the bank notes. "Price cu ts will not increase petroleum demand . " Inventories can b e liquidated only by reducing the volume of new supply. Chase recom­mends that cur ren t volume of domestic crude product ion plus imports b e shaved by at least 675,000 barrels a day for the next few months. Refinery runs need not exceed 7.3 million barrels a da>\ it adds (current rate: about 7.5 million barrels) .

• In Rubber, Too. Most major rub­ber manufacturers chalked u p a some­what higher volume last year. General pushed sales u p S°<-, Goodyear nearly 5 ^ . Goodrich over l^c, Dayton 107c; U . S- Rubber showed a 3 ^ decline.

But rubber firms' profits, too , bumped u p against increased competition and rising costs. Higher selling prices in some lines and operating economies were not enough to offset h igher costs, says U. S. Rubber 's pres ident Η. Ε . Humphrey's. Humphreys notes a 6*/c

boost in wages and salaries during the year, coupled with intensified selling efforts and stepped-up research spend­ing. And Seiberling president J. P. Seiberling reports that lower margins for bis company (Seiberling sales were u p slightly) resulted from "increased emphasis on price buying" in the re­placement tire market .

Wi th new car production running 2.5% under a year ago, however, most t ire manufacturers a re banking on the replacement market to hold production u p to last year's level. Goodyear of­ficials expect 1958 to be a good, though very competitive year. The domestic renewal market and foreign operations are particularly promising, they say. They see further growth,, too, in non-tire lines.

Seiberling, which is primarily a pro­ducer of replacement tires, says flatly, " W e expect to sell more passenger tires and about the same number of truck tires in 1958 as in 1957." The outlook for earnings, the company adds, is "fairly good." And Dayton Rubber says, "We are confident that profit margins will be better than last year."

On the other hand, liigher factory inventories have led to product ion cut­backs and layoffs in the rubber indus­try, just as they have among automo­bile producers. As a result, consump­tion of natural and synthetic rubber now is not expected to be much changed this year from 1957's total of 1,469,000 long tons. Even at that level, though, it will be topped only by 1955's high of 1,530,000 tons.

Hooker, Foote Form HEF The high energy fuel business can

chalk up one more company. Hooker Electrochemical and Foote Mineral have joined hands to form a new cor­poration—HEF, Inc.—to make solid-fuel components for rockets and guided missiles.

Specifically, H E F will make am­monium perchlorate and other perchlo-rates. T h e decision to form the new company comes about five months after Hooker and Foote embarked on a joint stud}' of the propellant market (C&EN, Oct. 7, 1957, page 2 5 ) . At about that time, th ree other companies—American Potash, Food Machinery & Chemical, and National Distillers—teamed up to form AFN, Inc. to invade the boron fuels field.

Foote has researched certain aspects of the propellant field, and Hooker is already a maker of sodium perchlorate and pc'~~3ium perchlorate. The joint venture, says Foote, means a bid for the larger markets expected to come in the solid propellant area.

H E F , incorporated in Delaware, plans to open rocket propellant fa­cilities sometime in the future; where and when will be announced later.

Alumina from Wastes Two firms, North American Coal

Corp. and Strategic Materials, are set­ting up a joint company to develop and exploit a new process to get high-grade alumina from low-grade ores and coal mine wastes. Name of the new com­pany: Strategic North American Corp.

The new process, called the Strate-gic-Udy Process, uses acid leaching, and is the brainchild of Marvin J. Udy and his son Murray, both of Strategic. The process differs from the Bayer Process in that it uses domestic raw materials high in iron and silica. Bayer must use imported high-grade bauxite. Officials of both parent firms say the Strategic-Udy Process turns out alumina of high purity and eliminates two of the costly steps in other acid processes. Patent on it is pending.

Strategic North American plans to put u p its first commercial plant at North American's Powhatan mines near Shady Side, Ohio, in the Ohio Valley. When actual building begins depends on the outcome of research and pilot-plant work now going on. •

2 3 C & E N M A R C H 3. 1958