FOCUS: Europe olefins/aromatics on edge post-Ineos

12 October 2005 13:04  [Source: ICIS news]

Future uncertain for Ineos/InnoveneBy Nel Weddle and Philippa Davies

LONDON (ICIS news)--The European olefins and aromatics markets are poised for a major shake-up on the heels of Ineos’s $9bn (Euro7.5bn) takeover of Innovene that in the extreme could lead to contract revisions and big drop in liquidity, industry officials said on Wednesday.

The takeover brings together strange bed-fellows as the trading savvy BP-trained Innovene get under the sheets with the conservative market-shy Ineos.

"It’s a huge change for us," said David Jones, Commercial Director, feedstocks, olefins and aromatics for Innovene. 

"Innovene engages in risk managing the asset position that we have, looking at exposure to price. We are one of only a few producing companies that do this. It is not clear yet whether the new Ineos will employ a similar strategy."

The uncertainty was also echoed by Ineos officials. The company hopes to finalise the takeover in early 2006.

"This acquisition is too big to just bolt on to what we had before. We don’t know yet if Innovene’s style will take over Ineos or the Ineos style will take over Innovene. It’s too early to say," a senior  Ineos aromatics source said.

The newly created company will be the biggest ethylene consumer in Europe with an appetite of around 3 million tonnes annually as it feeds into the various downstream production including 930,000 tonne/year of polyethylene on the Innovene side and a total requirement of 850,000 tonnes for the polyvinyl chloride and ethylene oxide and glycols businesses from Ineos Chlor.

But this huge consumption was also matched by an equally big production capacity of about 2.3 million tonnes. The net result is that it would still be fairly balanced in ethylene, making it one of the more unbiased players in the market should the new company keep existing external supply contracts, they said.

The new venture could just as well leverage on the synergies and terminate all contracts once they are up for renewal and build on the natural integration created to pass costs increases down the hydrocarbon chain internally.

"There are still some fundamental things which need to be worked out with regard to the specifics on each product. It’s still to be decided how things will be structured," Jones said.

Ineos and Innovene have buy and sell term contracts with various industry heavyweights but details of these are kept close to their chest, market sources said.

Ineos said on the deal would not alter the ethylene balance in Europe and the 700,000 tonnes net short meant that the company would continue with its plans to build an ethylene complex at Wilhelmshaven in Germany.

But industry players are already looking at the fallout from this takeover. One issue being talked widely is the fate of the proposed monthly ethylene contract of which Innovene was a major sponsor.

"We have had some good discussions with our partners but don’t think any new agreements will emerge before January now," Innovene’s Jones said.

On aromatics, the new venture will remain a net buyer of benzene in Europe despite acquiring 295,000 tonne/year of benzene from Innovene’s Grangemouth site in the UK, 370,000 tonne/year at Cologne, Germany and 200,000 tonne/year at Lavera, France, to take its total benzene production capacity to 865,000/tonne annually, an Ineos source said.

The huge benzene output was no match for the group's large appetite required to produce massive volumes of phenol and styrene.

Ineos Phenol, by far the biggest phenol producer in Europe, has a 650,000 tonne/year plant in Gladbeck, Germany and a 470,000 tonne/year unit in Antwerp, Belgium, buying around 700,000-750,000 tonne of benzene in the open market annually. The new company also produces 380,000 tonnes/year of styrene through Innovene's plant in Marl, Germany.

By: Philippa Davies
+44 208 652 3214

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