28 September 2007 12:58 [Source: ICIS news]
By Nigel Davis
LONDON (ICIS news)--Ratings agency Standard & Poor’s talks about a petrochemicals downturn starting in 2009 based on its analysis of continued 3.5% a year global demand growth and planned, largely ethylene, capacity additions.
Some producers think the current polyolefins earnings peak can last to 2010.
Fortunately or unfortunately one of them will be wrong.
The impending downturn is a key item on all CEOs agendas across the sector. But at this year’s gathering of the European petrochemical industry in Berlin at the EPCA conference, which starts this weekend, the fact that longer term trends too have finally struck home will be more widely apparent.
From a European and indeed a ?xml:namespace>
European and US producers probably do need to adopt a "scrap and build" policy in petchems as the realists in the industry acknowledge.
The number of plants on chemicals sites across both continents will probably diminish. To survive, the production units that remain will have to be more up-to-date, efficient and integrated. In polymers the upgrades have already begun.
The fact petrochemical plants can have a useful life of well beyond 20 years has somewhat surprisingly burdened the sector but probably nowhere more so than in
The Europeans tasted the bitter fruit of maturity more than 10 years ago. The fact no new ethylene cracker has been built in the region since 1993 is both good and bad.
On the one hand Europe must expect a rush of commodity plastics from the
On the other, the demand for more sophisticated polymers and other petrochemicals-based materials can be expected to increase as
Consumers will want materials produced to better, tighter and tailored specifications. Materials use will become an important factor in some markets driven increasingly by sustainability and other environmental factors.
A more sophisticated petrochemicals market is not inconceivable. More efficient plants producing more sophisticated products - or a least materials to tighter specifications are already a reality.
But European producers have to grasp the nettle when it comes to scrap and build.
The industry has been here before. Too often efficient producers have given up on the sector and been happier to pass on assets to others more prepared to run them into the ground.
Will times change when
And one would also like to think that the cutbacks being announced now - affecting production sites across the continent - mean that the industry has a stronger more efficient future rather than one that is bloated and subsequently more precarious.
The EU is currently considering the future of the chemicals sector in its newly created High Level Group on chemicals competitiveness.
If lean years loom for
There is nothing like an impending downturn to help draw focus to industry fundamentals and to help companies reconsider their position in the market.
Petrochemicals players have to decide where they want their money spent - spend in the Middle East and in
Construction costs may be high but investing counter-cyclically could also be a wise strategic move.
The sector will benefit from spending on technology and higher value markets. Someone, somewhere will capture the advantage.
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