OUTLOOK '08: Europe polyolefins set fair for H1

28 December 2007 11:18  [Source: ICIS news]

By Linda Naylor

LONDON (ICIS news)--European polyolefins producers ended 2007 in a strong position after a profitable year, and they see a clear run for the first half of 2008 at least due to delays in planned Middle East capacity, robust demand in Europe and Asia and cutbacks in old unprofitable European production.

Polymer producers had already begun to position themselves carefully in order to be able to meet the onslaught from Middle East capacity which would come on stream sooner or later.

Major polypropylene (PP) producers LyondellBasell and INEOS Polyeolefins brought down two plants mid-2007, at Pernis in the Netherlands and Geel in Belgium respectively, amounting to 440,000 tonnes/year of capacity. Both plants produced basic grades of PP on old technology and could not hope to compete with upcoming new production.

INEOS was also closing its 185,000 tonne/year high density PE (HDPE) blowmoulding unit at Grangemouth in the UK, due to poor profitability.

The company was planning capacity expansions elsewhere, however, on both PP and HDPE, but these would focus on differentiated products, which would allow them to ride the storm of imported product when it arrived.

Other producers allied in joint venture partnerships which would have their own production in the Middle East, based on low-cost gas feedstock, rather than the traditional naphtha-based feed in most European polyolefins production.

The latest of these partnerships was announced in December, between Dow Chemical and Kuwait’s Petrochemical Industries Co (PIC).

The European PE and PP markets were poised for higher prices in the first quarter of 2008. PE in particular was looking strong for January on higher monomer prices in line with strong oil and naphtha costs.

Linear low density PE (LLDPE) was particularly tight as imports from Saudi Arabia were reduced and swing plants were maximising HDPE output as margins improved in that sector. Hikes of €70/tonne ($103/tonne) were already being implemented, several beleaguered buyers confirmed.

HDPE inventories were expected to have built up a little over the holiday period, but here too buyers expected to be paying increases.

“We have very little choice at the moment but to do as they ask,” said one large HDPE blowmoulder. “It is a sellers’ market at the moment but things will change with the new capacity.”

PP hikes were not expected to be as strong as on PE, as PP is generally not as volatile as PE. Fewer imports disturb the market and growth was steady at an estimated 4.5-5% in 2007.

New production from Borealis at Burghausen in Germany, coming on stream in December 2007, was also not expected to have a major impact on the market.

“With demand running at 4.5-5%, in a seven million tonne market, a 330,000 tonne/year plant is not going to have much effect. It will simply satisfy demand,” said one major PP producer.

“2008 will be a year of domestic supply,” he continued.

While some new PP was expected shortly out of the Middle East, some projects were heavily delayed. The next major PP project would be Reliance’s 900,000 tonne/year plant, due on stream in the middle of 2008.

Looking towards the second half of the year, PE producers were less confident of a strong performance.

“The first two quarters will be strong,” said one major PE producer.

“There are no significant new capacities due on stream and demand is good. I expect imported product from new capacities to begin to have an impact in the fourth quarter of 2008. It is the third quarter that is not clear for me. It could be strong, it may start to ease back by then.”

Several other European producers agreed.

“A lot of the new capacity is delayed, but it will come, it’s just a question of when,” said another producer.

($1 = €0.68) 

By: Linda Naylor
+44 20 8652 3214

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