OUTLOOK '09: Europe olefins face uncertain year ahead

24 December 2008 09:08  [Source: ICIS news]

By Nel Weddle

Olefins facing uncertaintyLONDON (ICIS news)--European olefins players are looking ahead to 2009 with much wariness and varying degrees of pessimism following the unparalleled extremes of 2008 which have left so many shell-shocked, especially during the fourth quarter.

In fact, few industry players were even willing to outline their expectations for the first quarter of 2009, let alone the whole of the year, save for the comment “well it can’t get any worse”.

That most olefins sources were expecting a tough 2009 was not surprising.

Not only were they having to contend with competition from new capacity start-ups on olefins and their primary derivatives polyethylene (PE) and polypropylene (PP) in the Middle East, there was now great uncertainty regarding the global economy, and particularly the impact on the key automotive and construction sectors.

This uncertainty regarding future volatility in feedstock and demand levels led to a handful of key ethylene and propylene contract players agreeing a January monthly contract, the most support that a move to a monthly contract system from a quarterly basis has garnered despite numerous attempts over the past few years.

Olefins players had been anticipating the onset of a downcycle moving through 2009 because of the additional olefins and polyolefins capacity.  However, the whole situation was accelerated and exacerbated by the impact the financial crisis in the fourth quarter.

Most observers expected a slow start for January. Derivative production would be brought back online mid-January, at best, following an extended seasonal break and would likely be operating at low levels.

There were strong expectations that activities would not really get going until after the Chinese Lunar New Year holidays at the end of the month. In February and March, demand was expected to pick up but would hardly be described as robust.

Sources said that order books for January further down the chains were looking rather thin on the ground, some worryingly so. One derivative producer said that there would be no drop of consumption at over half of its units during the whole of January.

One significant change versus 2008 was that buyers were said to have under-contracted considerably. Players were simply being cautious and playing safe, having had fingers burnt by the rapid and dramatic decline from historic highs in the fourth quarter, sources said.

This could result in a steep, although perhaps temporary, reversal of trends should demand be earlier and better than expected, particularly since plant restarts in cold weather were often plagued with difficulties. However, this more optimistic view was not commonly held.

At the time of writing, cracker output was at an all-time low and some temporary stops because of market conditions were in force.

This was a situation not seen since fourth-quarter 1998, when crude prices fell below $10/bbl and olefins consumers stood back to wait for a lower monomer price. However, then, the demand decline was confined only to Europe and was not the global phenomenon that it is today.

Sources said that it was ironic that crackers that had cut back rates in July because of feedstock highs and negative margins, were now having to cut back because of feedstock and demand lows during a time of peak margins.

Most agreed that cracker utilisiation rates throughout 2009 would remain low, but hopefully better than December 2008 and as one producer put it “crackers are at their minimums, they cannot go on like this for a whole year”.

Unfortunately, the 2009 planned maintenance schedule would not provide much relief, sources said, as the slate was much easier than seen in the last couple of years.

In general, olefins players anticipated a better second half 2009 than first and second quarters, but as this year's experience showed, and sources are only too well aware, no-one has that crystal ball.

Company

Location

Capacity  000s C2

Dates

Total Petrochemicals

Feyzin, France

250

9 weeks April-May*

Shell

Wesseling 2A, Germany

260

6 weeks April-May*

Lukoil

Bourgas, Bulgaria

150

May-June

Dioki

Zagreb, Croatia

90

June

INEOS

Grangemouth KG, UK

320

August-September*

Borealis

Stenungsund, Sweden

625

September*

LyondellBasell

Wesseling 4, Germany

280

7 weeks September*

Polimeri Europa

Brindisi, Italy

440

6 weeks September-October*

Shell

Heide, Germany

108

5 weeks September*

*not confirmed

For more on olefins visit ICIS chemical intelligence

To discuss issues facing the chemical industry go to ICIS connect


By: Nel Weddle
+44 20 8652 3214



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