Low-margin Europe, Asia crackers may close - US Dow

14 June 2012 21:53  [Source: ICIS news]

HOUSTON (ICIS)--Low-margin crackers in Europe and Asia may ultimately have to shut down if margins for naphtha-based producers remain under pressure, an executive at US-based Dow Chemical said on Thursday.

Already, Japan-based producer Mitsubishi Chemical plans to permanently shut down its 390,000 tonne/year No 1 naphtha cracker and 90,000 tonne/year No 1 benzene plant at Kashima in 2014.

Margins in Europe are about break even, and they are negative in Asia, said Bill Weideman, chief financial officer for Dow.

Weideman made his comments during the Deutsche Bank Global Industrials and Basic Materials Conference.

Margins could improve a bit in Europe because of the significant drop in naphtha prices, Weideman said.

Nonetheless, profit levels in Europe and Asia are not sustainable long term, he said. "Our belief has always been that that will cause some of the lower margin manufacturing units to shut down."

The process, though, has taken a bit longer than Weideman had anticipated, he said.

Producers with ethane-based crackers such as Dow are at a competitive advantage versus naphtha-based units because of the large discount between natural gas and crude oil.

In particular, the advent of shale gas has given US crackers a significant cost advantage.

Regarding the possible shutdowns, Dow CEO Andrew Liveris made similar comments in October 2011, when he said that higher naphtha costs could idle 2m tonnes of cracker production in Europe and Asia because of margin pressure.

Dow's crackers in Europe are less vulnerable to naphtha costs because they can use liquefied petroleum gas (LPG) as a feedstock.

In fact, Dow was evaluating the shipment of low-cost propane from the US to its flexi-crackers in Europe, particularly its plant in Terneuzen in the Netherlands, Liveris said earlier this year.

Additional reporting by Tomomi Yokomura

By: Al Greenwood
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