Quarter of Europe’s crackers should close by 2015 - KPMG

02 February 2010 11:55  [Source: ICIS news]

By Will Beacham

Cracker closuresLONDON (ICIS news)--Fourteen of Europe’s 43 crackers will be uneconomic by 2015 and should close, consultants KPMG said on Tuesday.

Fierce competition from the Middle East and Asia would render all but the most integrated and competitive bulk chemical capacity obsolete, Chris Stirling, head of chemicals at KPMG in Europe, told ICIS news.

“We’re not saying they will close, but looking at the relative costs compared to capacity elsewhere, these plants look uneconomic to us,” Stirling said. “Closing is the most rational move, but in each case there will be real reluctance to do it.”

In a new report, ‘The future of the European Chemical Industry’, KPMG said European chemical players needed to “ruthlessly identify which chemical clusters will remain competitive on the global stage and focus resources and investments in these areas to ensure their long-term survival”.

Stirling said that to survive and grow, Europe’s chemical sector would need to play to its strengths and not compete head on with the Middle East and China with their enormous advantages in feedstocks and scale in commodities.

“In Europe there is an enormous amount of knowledge and expertise giving the industry the ability to innovate and find new ways of doing things,” said Stirling.

Paul Harnick, sector executive for chemicals and pharmaceuticals, said that the industry in Europe enjoys deep relationships with customers, which should be exploited to provide innovative products and solutions. “The new Middle East players don’t have that advantage,” he added.

Stirling said there will be a lot more merger and acquisition activity as Middle East and Asian players buy up European chemical companies for their technology. There is a danger in the medium to long term, said Stirling, that the new owners might close European plants as their focus is on the acquisition of technology.

Over the past few years, Saudi Arabia’s SABIC has bought Dutch DSM’s commodity chemical business; and Abu Dhabi’s IPIC acquired Canada’s NOVA Chemicals, plus stakes in Austria-headquartered Borealis and OMV. In November, ICIS reported that IPIC is closing in on a European acquisition, with Germany’s Bayer MaterialScience among its targets.

India’s Reliance is currently bidding for Dutch commodity group LyondellBasell.

Harnick added: “I also think we’ll see a lot more joint ventures between the Middle East and China. They are geographically close and the Middle East has cheap feedstocks, whilst China has a huge market.”

Stirling declined to specify exactly which crackers were under threat, citing commercial confidentiality.  

Download KPMG’s new report, 'The future of the European Chemical Industry'
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By: Will Beacham
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