05 August 2009 17:35 [Source: ICIS news]
By Nigel Davis
Near-term visibility is limited and the medium-term view is clouded. In polyolefins, however, the forward view is more distinct. The past is another country.
Coming out of the recession producers know that years of demand have been lost. Consultants AMI estimate, for example, that thermoplastics demand dropped in
Those numbers, of course, relate to polymers of all sorts but they are indicative of market collapse in 2008 and the struggle faced by all parts of the plastics industry in 2009.
The big polyolefins have been hit hard, commodity grades particularly. Even consumables have taken a turn for the worse as consumer and industrial spending has been reined in.
The positive news is that de-stocking appears to have reached a low point and that, while demand is more hand-to-mouth, there is some life in the business.
But that by no means indicates a return to reasonable profitability.
That is not likely until 2011, analysts suggested earlier this year. Nothing really has happened since to counter that view.
The current recession has forced profitability down to very low levels. Even Borealis, a polyolefins maker with an increasingly strong foothold in low-cost polymers production in the
“We believe that we are looking at an 'L' shaped recession and we are bouncing along the bottom [at the moment],” Borealis CEO Mark Garrett said in an interview with ICIS news on Tuesday.
“It could be that we could see another difficult quarter or two,” he added.
Borealis does not expect an upturn until the end of 2010 but Garrett wants “solid financial results” in 2011, the year after its huge Borouge II joint venture cracker and downstream plants come on stream in
Between now and then, however, Borealis, and other polyolefins producers, face an uphill battle.
Contending with the recession is one thing. For some players and their production sites, surviving the aftermath is another.
New production capacities - the low-feedstock-cost plants in the Middle East and new assets in
Operating rates for higher-cost facilities will come under pressure. The weakest on the cost curve will be under closest scrutiny.
Yet companies have been preparing for this period for years and continue to do so. Older, higher-cost plants have been closed and operations focused on robust sites. Entire companies have, by necessity, been readied for bottom-of-the-cycle conditions.
It is the additional pressure brought about by the recession, however, that still gives greatest cause for concern.
There is so much talk of the end of de-stocking and of the pull of
There is very little underpinning the business other than the pull from
Prices for both polyethylene (PE) and polypropylene (PP) have been pushed higher as the balance of supply and demand has shifted, but the movement has in
Large volumes of both PE and PP were exported in the first half of the year, particularly in the second quarter, helping to support the weak European market.
Not much has been seen yet in
But the market awaits the arrival of new volumes through this year and next with some trepidation.
The new volumes, even if they don’t have a direct impact on domestic European or North American markets, are likely to take away exports.
And it is the loss of those opportunities that will put further pressure on already stressed, relatively high-cost businesses and assets.
It will be tough having to wait for domestic customer markets to improve while the battered manufacturing economy struggles out of recession.
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