Corrected: EPCA '09: Petchems wary of future trough driven by new capacity

04 October 2009 11:55  [Source: ICIS news]

Correction: In the ICIS news story headlined “EPCA '09: Petchems wary of future trough driven by new capacity” dated 5 October 2009, please read in the eighth paragraph … reached agreement with them in mid-2009 on a covenant … instead of … mid-2008 on a covenant …. A corrected story follows.

By Nigel Davis

BERLIN (ICIS news)--The commodity petrochemicals business has improved over the past couple of months but the industry is still wary of the expected trough driven by new production capacity, INEOS Olefins & Polymers CEO Tom Crotty said on Sunday.

“We’ve still got the industry trough of supply and demand in petrochemicals," he said on the sidelines of the 43rd European Petrochemicals Association meeting.

He foresees a slow, steady recovery in 2010 but says it will be 2011 before producers can expect to see margins at 2007 and early 2008 levels.

“We’re operating in the low 80s today,” he added, referring to cracker operating rates, “and it’s clearly improving.”

Crotty said there was a variant between different types of business, with products sold into construction and automobiles still not good.

“Our issue in petrochemicals is that we’ve got our own ‘U’ shaped curve to get through,” he said, referring to the potential capacity oversupply expected as new production facilities come on stream in the Middle East.

“It’s going to take us another 18 months or two years to get back to the margins seen in 2007 and early 2008,” he said.

INEOS began talking to its principal lenders last year as the extent of the downturn became more widely apparent, and reached agreement with them in mid-2009 on a covenant re-set and a five-year business plan.

“We’re feeling pretty good about where we’ve got to now,” Crotty said. “We are actually ahead of our five-year plan in 2009 and we’ll be ahead for the full year.”

Crotty was positive on the position of Europe in petrochemicals but said that further integration would be helpful. “The more integration you have, the stronger your industry is,” he said.

Europe needs a more extensive olefins pipeline network, he suggested, highlighting the discussions INEOS was having alongside others with the French government for a link connecting the olefins pipeline system in France with the more extensive ARG.

The downstream polyolefins business was growing at about 3% a year in Europe, he said, but added that a company such as INEOS needed to differentiate itself to drive margins higher and push further into more specialised products for applications in segments such as medical and speciality packaging.

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By: Nigel Davis
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