INSIGHT: Demand will drive Europe chems in 2007

02 January 2007 16:50  [Source: ICIS news]

By Nigel Davis

 

LONDON (ICIS news)--Europe’s chemical producers can expect a strong start to 2007.

 

Supply/demand balances remain tight and energy prices are off 2007 peaks. Lower oil and naphtha feedstock costs have put downward pressure on upstream prices which is good for some.

 

Differentiated portfolios can be expected to continue to perform well. There are distinct pockets of upstream strength.

 

Just how long the good times last, however, remains to be seen.

 

Late last year industry economists were signalling a chemicals demand and output slowdown in 2007.

 

Two thousand and six will prove to have been another good year for chemicals in Europe.

 

Producers had to battle with increasingly higher raw material costs, whether oil based or based on other crucial commodities.

 

The commodities surge though appears past. That is good news only so long as chemical makers can hold on to margins. As yet, widespread margin erosion is not apparent. The across the board outlook is good.

 

Ethylene makers expect a balanced market in the early part of the year at least. Plants continue to run hard even though operating rates are off 2006 peaks.

 

The busiest maintenance schedule in 10 years characterised the European olefins business in 2006. There are fewer planned turnarounds for 2007 but Europe’s cracker output is vulnerable at spring and autumn pinch points.

 

Lower Q4 2006 olefins prices have put pressure on downstream makers of plastics and other chemicals to maintain prices but producers still tend to hold the upper hand in the market.

 

In that respect the sector generally has not lost momentum. From the current standpoint, the key question marks hover over the second half of the year.

 

Europe’s olefins producers are not expecting a global trough in 2007 and the knock on regional impact. Likewise project delays in the Middle East appear to be holding back the inevitable.

 

If the outlook picture then is demand rather than supply driven, the industry seems set fair.

 

Some growth slowdown is expected if economic growth eases back as forecast. But increased industrial activity in central and eastern Europe is driving primary chemicals demand.

 

Key manufacturing markets for chemicals look healthy running into the New Year.

 

The economies of Romania and Bulgaria will be given a lift following entry into the European Union on 1 January. The strength of the euro against the US dollar would favour imports into the EU. 

 

And not surprisingly the weather also helps. Unseasonable mild temperatures in Europe have thus far kept the lid on gas futures.

 

A cold snap can change that but currently the sector is not suffering from excessively high energy costs.

 

Mild climatic conditions reflect a perhaps uncharacteristically benign outlook for chemicals in 2007.

 

For the chemical industry in 2007 Europe will not be a bad place to be.

By: Nigel Davis
+44 20 8652 3214

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