03 February 2010 17:37 [Source: ICIS news]
By Nigel Davis
LONDON (ICIS news)--Not that long ago, the now-defunct Lehman Brothers was suggesting that as much as 45% of the world’s ethylene capacity was at risk from rising sea levels brought about by global warming.
This is the flood of new low-cost cracker capacity expected in the ?xml:namespace>
By looking at the European cost curve, KPMG has determined that 14 of the region’s 43 crackers will, by 2015, be uneconomic to run and should be closed. This means that 26% of
In an ideal world, perhaps, the plants would close and companies would replace those assets with something new – but not with new cracking capacity in
“Many European companies are already recognising the possible advantages – and the necessity – of repositioning themselves as solutions providers rather than just basics suppliers for their customers,” says KPMG.
“The European chemical industry must capitalise on its historic advantage in innovation to stay ahead of the competition.”
But to stay ahead of the competition companies not only have to be innovative, they also have to move, and move fast.
The initial wave of new olefins, first-line derivatives and polyolefins capacity is being commissioned in various
There can be no doubt that the centre of gravity of the industry generally is shifting away from North America, Europe and
Each of those regions remains an important and increasingly sophisticated market for chemicals of all sorts. It is just that producing and selling commodities in these parts of the world are becoming a much changed game.
Most players recognise this and are making the decisions now that will change the face of the industry.
KPMG, interestingly, produces a chart in its report that shows which firms, in its view, will be the sector’s largest in 2015.
The top 10 are: SABIC, BASF, Reliance Industries, ExxonMobil, Sinopec, Sinochem, Dow Chemical, Saudi Aramco, DuPont and Adnoc/IPIC, in that order. Only one has its headquarters in
“Even before the current recession, the European chemical industry saw a gradual but steady decline in global market influence,” says KPMG.
It references that BASF estimates for an 8% increase in chemicals demand in the Asia-Pacific region between 2008 and 2020, but a 6% decline in western Europe.
Already increasing their role in chemicals, Middle East players will come to dominate these export markets, putting further pressure on businesses located in Europe and
For various reasons, European players might be expected to have to proceed with closures more slowly.
It will not be a smooth progression. Political factors weigh heavily against closures at some chemical sites, which might be expected to limp along, although possibly under changed ownership.
It makes sense to focus on the more advantaged chemicals “clusters”: the sites and locations that benefit from logistics, feedstock access, customer proximity and other factors. But that will not necessarily always be the case.
“There should be a process to identify and rationalise chemical plant and clusters made uneconomic by the new world order (principally, likely to be small land-bound, non-integrated units). This should allow future investment to focus on those areas in which the European chemical industry remains competitive on the global stage,” says KPMG.
This is very much wishful thinking, although there can be no denying the dynamic that increasingly exists to bring change upon the sector. Growing confidence in the business environment across the sector and in financial circles suggests that the appetite for change – possibly through rationalisation, but certainly through increased merger and acquisition (M&A) activity – will increase.
That search for greater competitiveness is ongoing and, for each company in the sector with assets in
As KPMG says, “There is no doubt that the shape of the global chemical industry is changing, but the industry in
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