EPCA '10: Europe olefins players brace for 'freak waves' into 2011

03 October 2010 09:08  [Source: ICIS news]

By Nel Weddle

LONDON (ICIS)--European olefins players attending the 44th annual European Petrochemicals Association (EPCA) meeting this weekend in Budapest, Hungary, will be cautiously looking ahead to 2011 as they reflect on how the industry has gotten through the year so far relatively unscathed.

“The topic of a better-than-expected 2010 is definitely going to consume the first half of most meetings,” said a producer.

Industry sources said that 2010 would be a year of two halves, as the onslaught of new capacity additions from the Middle East both in monomer ethylene and propylene and its derivatives, primarily polyolefins would heavily influence European profitability.

Poor cracker margins would lead to low operating rates and the most unprofitable crackers would have to go, they predicted.

But the industry has fared better than expected, a phrase much quoted as the year has progressed.

Why? There are several reasons. In a nutshell, they are: stronger-than-expected demand from China, start-up delays and technical issues at mega crackers, and feedstock shorts because of low OPEC quotas resulting from the recession.

A weak euro in the first half of the year meant that European derivative exports were favourable and derivative imports less so.

Demand for ethylene, propylene and butadiene has been robust throughout 2010. Although demand has been better than expected, due to restocking as well as the effects of a healthier export market, it is not at the levels seen before the fourth quarter of 2008, .

"The industry has learnt to live with low operating levels,” said a source.

A second producer said: “There is more optimism. In 2009, people had a very conservative view for 2010.”

The summer lull was not especially pronounced as in previous years owing to the low stock chain management. As the year was drawing to a close, olefins players would be asking what could be expected for the remainder of 2010 and the approaching year.

“Now, we are happy that 2010 has been better than we thought. We have been lucky for the delays in the Middle East, fast growth in China, restocking [albeit at a lower level] of the chain, but I will remain very cautious,” said the second producer source.

The key issue remained new capacity in the Middle East and how it will impact Europe and when. For many players, it was still inevitable that some European capacity would have to close.

“I don’t think the anticipated ethylene oversupply will just go away,” said a trader.

Only this week, Shell confirmed that it would close its 2B cracker at Wesseling, Germany. The cracker, which has a nameplate capacity of 240,000 tonnes/year, will be shuttered by the end of 2011.

With some earlier reports having estimated that up to 3m tonnes of capacity would have to close in Europe, there was obviously still some way to go.

“The big question is still who will shut down the next cracker to balance the supposed length in 2011?” asked the first producer.

However, some sources said that while the issues that had prevented the expected onslaught of new capacity would be resolved in time, there would be other things that would help keep the “tsunami” of capacity at bay.

“There are still risks, but [there is still] growth, delays in start-ups as well as sanctions and reliability issues,” said an integrated player.

Far from being a tsunami of monomer and derivatives, it would be more like an “occasional freak wave”, he added.

For more on olefins visit ICIS chemical intelligence
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By: Nel Weddle
+44 20 8652 3214

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