OUTLOOK '11: Europe olefins will adapt to new Mideast capacity

27 December 2010 09:35  [Source: ICIS news]

By Nel Weddle

LONDON (ICIS)--European olefins players are confident they will be able to adapt to an "inevitable" onslaught of new Middle Eastern capacity in the second half of next year, following a strong 2010 with better-than-expected margins.

The experiences of this year demonstrated that while the impact of new capacity was overwhelming on paper, in reality feedstock shortages, technical issues and logistical problems meant there had been much less effect than expected on both cracker operation rates and pricing.

Far from the predicted tsunami of ethylene (C2) and polymers, the impact on Europe had been likened to an “occasional freak wave”.

But while both the ethylene and propylene (C3) markets were surprisingly ending the year very strongly, as the recent contract settlements for January show, sources were still fearful that the bubble could soon burst.

“[The] first quarter is strong - volumes-wise, I am not sure about margins,” a non-integrated propylene consumer said ahead of the recent January settlement.

An integrated propylene derivatives producer said: “The [2011] forecast is as good as this year, but [we] will have to repeat this year’s better-than-expected margins and that could be more difficult to secure.”

An olefins producer added: “From a demand perspective, it should start strong in first quarter 2011.”

Others cautioned that the record-high contract prices for January could damage demand, as not all derivative sectors would be able to pass on the sharp increases.

However, the concentration of planned cracker and on-purpose propylene maintenance shutdowns during the first half could help to mitigate any marginal reduction in demand.

Most were of the opinion that the first half of 2011 would be better than the second half, when there would be more of a struggle to balance margins against volumes.

However for others, being able to forecast market developments with even the slightest degree of accuracy was, in today’s modern world, simply not viable and viewed as a waste of time.

“There is no outlook,” a trader said.

Firm feedstock costs and a strong US dollar pushed the European propylene January monthly contract price (MCP) up 11.5% to a record high of €1,070/tonne ($1,402/tonne). The ethylene contract price of €1,110/tonne was the highest since the fourth quarter of 2008.

The contracts, which settle on a free delivered (FD) northwest Europe (NWE) basis, were first agreed late on 22 December.

European scheduled maintenance turnarounds - *unconfirmed

Borealis	Propane dehydrogenation (PDH) and splitter Antwerp, Belgium	January-February
Polimeri Europa *	Porto Marghera, Italy	February-March, six weeks
Dow	No 1, Terneuzen, NL	March-April, 45 days
Sabic	No 3, Geleen, NL	March-April, four weeks
BASF	No 2 Ludwigshafen, Germany	April-May, six weeks
OMV *	Schwechat, Austria	April-June, seven weeks
INEOS *	No 4 Cologne, Germany	August-September, seven weeks
INEOS *	G4, Grangemouth, UK	September-October, six weeks
ExxonMobil *	Mossmorran, UK	September, one-two weeks
Total Petrochemical *	Gonfreville, France	September-November, six-seven weeks
Shell	2B, Wesseling, Germany	Closes permanently Q4 *

($1 = €0.76)

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By: Nel Weddle
+44 20 8652 3214

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