INSIGHT: Euro polymers under pressure

18 January 2006 16:40  [Source: ICIS news]

By Nigel Davis

Products made from polystyreneLONDON (ICIS news)--Thermoplastics demand in Europe hardly sparkled last year and it is difficult to see much change in 2006. Producers might be optimistic but a combination of high (polymer) prices and subdued downstream demand underlies a worrying trend.

The sector recovered relatively well from the deep 2001 downturn but rates of growth have subsequently dropped off – to under 2% last year according to plastics consultant AMI.

Traditionally strong markets like polypropylene (PP) and polyethylene terephthalate (PET) have been disappointing - with 2005 PP demand growth of just 1%. Polystyrene (PS) and polyvinyl chloride (PVC) have continued on a downward trend from 2004. The uptake of engineering plastics last year was patchy.

Increasingly converters are running on lower stocks. They have to cope better with fluctuating raw material prices and, according to the consultants, weak consumer demand.

A great deal is heard about (relatively) robust European industrial demand – the driver, certainly, for many chemical products. But for materials that are widely used in consumer electronics and automobiles, fundamental trends in these sectors are important.

European demand profiles are changing. European passenger car sales were down last year with new registrations sluggish in the fourth quarter. Polymers demand in electronics applications has been weak.

It is not difficult to see why. European economic growth is not strong as the region’s major economies struggle with acute competitiveness issues. A great deal of business is moving to cheaper and faster growing markets in central Europe, and much farther afield. The growing importance of China as a manufacturing powerhouse is reflected in pressured markets in Europe.

Central European thermoplastics markets are growing relatively strongly – by 5% last year according to AMI. These markets, however, are relatively small with total thermoplastics demand of about 3.4m tonne, around 10% of the European total.

Upstream, polymer producers in Europe seem positive about 2006 – apart perhaps from PS and PVC makers. Polyolefins, used largely in packaging and segments like wire and cable, look set for a relatively good year, albeit driven more by price than volumes. There will be a tipping point some time when slower demand growth has much more of an impact on sector profitability but it does not look as though it will be in 2006.

The polystyrene chain has been hit by price volatility and subsequent product substitution that makes the outlook bleak. PVC faces problems in that Europe’s construction markets are shrinking, although there is growth in central Europe.

Polymer producers increasingly look for a haven from volatility and sluggish growth in speciality products but they have to recognise the fact that large parts of the business have become commoditised. In that case, coping with fixed costs and managing raw material and energy cost volatility become vitally important.

The uncertain future has seen the exit of three major players from the business this past year – Shell, BASF and latterly BP. Further commoditisation, particularly in high density polyethylene (hdPE) and linear low density polyethylene (lldPE), will become apparent as Iran and Saudi Arabia bring on line huge gas-based capacities. The impact of these capacities is expected from 2008.


By: Nigel Davis
+44 20 8652 3214



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