INSIGHT: Managing through an extended trough

04 October 2009 17:02  [Source: ICIS news]

By Nigel Davis

BERLIN (ICIS news)--More delegates than first expected, a buzz around the meeting hotels, and the usual queues for restaurants and taxis illustrate the fervour underlying this year's European Petrochemical Association (EPCA) meeting in Berlin.

Coming out of the trough of the demand slump brought about in late 2009 by the global credit crisis, producers are encouraged by recent demand growth. China was the driver in polyolefins and petrochemicals demand earlier this year. But regional demand over the past two months has picked up.

The China demand has helped draw product from new facilities being brought on stream in the Middle East; the domestic demand filling the gap left as the China-destined volumes found their mark.

Thankfully, ethylene products supply from the Middle East is not as great as it might have been given project plan delays. Europe as yet has not seen much in the way of polyolefin volumes from the region.

Some product will flow into Europe’s commodity polymer markets at some stage – and the situation could change overnight. But supply/demand balances in Europe are not as bad as they might have been.

Clearly, however, European producers are prepared for a wave of Middle East capacity and the cyclical supply-driven downturn that should have materialised last year.

This cycle looks as though it might be ‘U’ shaped, INEOS Olefins & Polyolefins CEO Tom Crotty said on the EPCA meeting sidelines on Sunday. Next year should see some steady growth, but significantly healthier margins cannot realistically be expected until 2011. Encouragingly, he talked of 3% per annum polyolefins growth in Europe.

Managing business through an extended trough is going to test the operational and management capabilities of this industry to the full.

The EPCA meeting theme in Berlin is sustainability but companies first have to survive intact this difficult and potentially damaging period.

The centre of gravity of the business is moving eastwards away from North America and Europe, of that there can be no doubt. But the efficient, and integrated, might be expected to survive these sea changes; in what shape, though, remains to be seen.

Differentiation for companies resident in these large established producing regions will be essential. Europe needs still to give a great deal more attention to the sort of infrastructure products that will help ensure the industry’s survival.

Petrochemical producers need to be fit for purpose no matter where they are located. The migration of upstream and downstream production is taking place, but whether at greatly accelerated pace is open to question.

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By: Nigel Davis
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