OUTLOOK '10: Europe capacity utilisation to remain low

24 December 2009 12:00  [Source: ICIS news]

Europe capacity utilisation to remain lowBy Lucy Craymer

LONDON (ICIS news)--Plants and production sites across Europe have been running significantly below capacity as producers try to counter the effects of lower demand, but while improvements are likely in 2010, utilisation is expected to remain below pre-economic-slowdown levels.

“2009 has been an extraordinary year with a huge amount of destocking - this has resulted in companies running plants at lower rates or idling them,” independent chemical analyst Paul Satchell told ICIS news.

He added that capacity utilisation rates were improving but still lagging.

Cazenove’s head of European chemicals research, Martin Evans, said that only modest improvements were likely in 2010 on the rates seen at the end of 2009.

“[In 2010] higher levels will be seen than in 2009 given the very depressed levels [seen in 2009] - sometimes as low as 55-60% - due to end-market destocking,” Evans added.

Frankfurt-based industry association Verband der Chemischen Industrie released statistics that show utilisation rates in Germany, Europe’s largest chemical producer, were at an average of only 77% in 2009, compared to an average of 83-85% in previous years.  

And the most recent figures released by Eurostat show that EU chemical production continues to fall - production of chemicals and man-made fibres dropped by 5.4% in October year on year.

Evans added that it was possible capacity utilisation would not reach similar levels to those in January 2008 until 2011, or even 2012, considering that 2007-2008 were boom years. Economic growth generally was likely to be more anaemic and restrained given the effects of the credit crunch on global manufacturing.

There are several factors that could further affect demand in the market, including stimulus packages coming to an end, permanent plant closures and new capacity coming on stream in the Middle East.

Deloitte corporate finance partner Mark Adams said that while he was in no doubt volumes would improve in 2010, the capacity coming on stream in the Middle East could affect the extent of the improvement.

However, UBS analysts disagree. An analyst note said ethylene nameplate capacity was expected to increase by 8% in 2010 due to plants coming online in the Middle East and, as a result, estimated capacity utilisation would be below that of 2009.

But Evans said: “Some of this planned capacity, however, may be delayed or cancelled given lower economic growth and issues such as Dubai, which has hit confidence.

“Equally, if economic growth recovers faster than expected, then extra capacity could be absorbed to some extent without affecting prices and utilisation rates in the west significantly,” he added.

The effects of Middle East product have already being seen with both BASF and Dow Chemical trying to offload their European styrene units - if buyers are not forthcoming, these could close down.

While capacity has been idled across Europe, many of the big petrochemical companies have closed plants, restructured sites and moved operations. And there is no end in sight for plant closure announcements, with the likes of AkzoNobel saying at the release of its third-quarter results that it was committed to improving operating efficiency through further restructuring.

Satchell added that the chemical manufacturing segment needed some permanent closures and that some of the larger players in the industry needed to take the lead in this.

Evans added that some western capacity may be closed on a company-by-company basis, although the supply/demand balance in many products areas remained favourable, given the capex discipline of the past few years.

Total’s CEO, Christophe de Margerie, said earlier in the year that plant closures were necessary as demand had dropped sharply in Europe.

“There is too much capacity available in the US, in Europe and in France,” Margerie said at the company’s mid-year outlook conference.

Adams added that polyethylene terephthalate (PET), purified terephthalic acid (PTA), dyes and commodity chemicals were all likely to see some restructuring.

To discuss issues facing the chemical industry go to ICIS connect


By: Lucy Craymer
+44 20 8652 3214



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