World chemical industry still 15-20% over capacity - consultant

11 February 2010 21:43  [Source: ICIS news]

HOUSTON (ICIS news)--The global chemical industry remains in a state of oversupply and 15-20% of capacity, or around 50m tonnes/year, needs to be shut down to restore sustainable profitability by 2015, a US consultant said on Thursday.

While the industry can say that it has put the demand side of its problems behind it,  "we still have the supply side to go through", said Gary Adams, president of Houston-based advisory firm Chemical Market Associates Inc (CMAI).

For North America, the good news is that the over-capacity issue is less severe than it is in Europe and northeast Asia, Adams told a luncheon hosted by the Southwest Chemical Association.

"The US has done its share," Adams said. "We need the others to kick in a bit as well."

The problem of excess capacity is being exacerbated by a worst-case scenario in which a wave of new plants, notably in the Middle East, are coming on stream at a time when demand is at a cyclical bottom, he said.

The promoters of those new projects in the Middle East  and in another example, Canada's Alberta province  are hoping that their capacity additions will be mopped up by Chinese demand.

But those hopes do not recognise that China is becoming increasingly self-sufficient in chemicals, accounting for around 80% of its own needs, Adams said.

"While China needs us, it does not need us as much as it used to need us," Adams said. "Everybody is going to China, but not everybody is going to fit."

Adams highlighted the benefit to the largely ethane-based North American chemical industry of the divergence between oil and relatively lower natural gas prices.

He predicted the trend would continue as US supply of natural gas continued to swell from development of onshore shale formations.

US natural gas markets are "bustling with news and expectations" surrounding the shale gas opportunities, he said.

While US cracker margins are reaping the benefit, "the competitive environment continues to be very severe for naphtha crackers", Adams said.

Paul Hodges studies key influencers shaping the chemical industry in Chemicals and the Economy
To discuss issues facing the chemical industry go to ICIS connect

By: Stephen Burns
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