26 October 2012 08:43 [Source: ICB]
Europe's chemical sector is under unprecedented pressure. Players such as Italy's Versalis are adopting radical business plans to ensure long term survival
With uncertainty emanating from the sovereign debt crisis in Europe, chemical companies have undergone consolidation, capacities have been reined in and portfolios rationalised in a bid to cut costs and maximise efficiency.
Nevertheless, European players continue to have every reason to be optimistic if they can adapt to face increased global competition, says Daniele Ferrari, CEO of Italian major Versalis.
Chemical companies across Europe face intense competitive pressure from other regions
"I believe there is still some consolidation that needs to happen - particularly with olefins and polyolefins. I also think it very likely that non-integrated players will be seeking integration, and merging with others who can provide complimentary technology."
"I am basically positive about the outlook for Europe and I'm sure that the structural problems and macro-economic issues that will help Europe be more sustainable in future will be solved over the medium term," he says.
With European crackers relying so heavily on naphtha, there is clearly a threat from the advantaged Middle East supplies and from increased shale gas production in the US. While Ferrari admits that there will surely be plenty of attention heaped on the developments in the US and the opportunities that were not there before, he thinks it prudent that players wait until the full extent of the costs and benefits emerge and can be analysed. In the meantime, he says, Europe still has plenty of potential.
"In Europe, there is a lot of technology being developed; we are increasing the product range from these crackers, as well as increasing the value of the co-products. What we are doing at Versalis is taking C5-C9 streams that we were not utilising and starting a new line of chemicals from there. On the elastomers front, for instance, people like us are able to complement their product range by using these streams and to have isoprene and other chemicals."
Bio-based chemical production is also proving central to producers' long term strategies; investment in greener, more sustainable chemicals and the development of a healthy product pipeline is becoming increasingly important for future growth, he says.
"Europe is an incredibly fertile ground for developing those processes both from a regulatory and opportunistic point of view. Converting existing sites with new technology while preserving the labour is another area of excellence, and a model that's being developed and can be exported all over the world," says Ferrari.
He points out, however, that although it will remain a key region for the chemical industry, it is still imperative that players look beyond the confines of Europe. Many producers are keen to increase their global footprint and expand into emerging markets.
"A lot of people still call China a developing area; I would say it is a dominant economy rather than developing. The largest share of chemical production in the world is in China - there are a lot of industries moving there and creating a technological base," he says.
"You need to be in the region to provide technology and service, and for the development of new material that will become specific for that region."
In September, Ferrari travelled to Shanghai to attend the inauguration of the company's new Asia-Pacific headquarters. While there, he announced plans to invest €400m/year ($513m/year) to expand its global business, with new operations in Asia to be focused on enhancing its elastomers segment.
Versalis signed a deal in July with Malaysia's PETRONAS to jointly build and operate elastomer plants in the country's southern Johor state. The joint venture (JV) will produce and market synthetic rubbers using Versalis's technology and expertise.
Collaboration and partnerships are proving a cost effective way of sharing skills and risk, according to Ferrari. Part of Versalis' strategy is focusing on agreements with international players and leveraging the company's proprietary technologies.
"We must continue and seek ways of becoming more, and remaining, competitive," he says.
"Increased integration and innovation and retaining labour. Europe has to continue to be the leading innovator in process development."
Earlier this year, Versalis - headquartered in Milan, and formerly known as Polimeri Europa - announced a €2bn program to transform it into a more market focussed and innovative business, with an increased emphasis on licensing its technologies.
The four-year plan through to 2016 will see the regeneration of its key sites, improved integration and production flexibility, as well as the development of green chemistry through its Matrica project - a 50:50 joint venture with Italy's Novamont.
Versalis will now focus on four business segments: elastomers, styrenics, polyethylene (PE) and intermediates.
"I feel we are trying to follow other people rather than lead, to be honest," says Ferrari. "We've taken a company that was neglected in the past for valid reason, as it was a chemical company within a big group and obviously the priorities were different - and I'm very proud of our new vision. I don't believe we're acting outside the box as far as our competitors are concerned.
"We are rather following the mainstream trend and striving to excel at, and eventually lead, through the sectors we have identified," he adds.
Ferrari says the company's next milestones will include the forming of new joint ventures. "Before the end of the year, we're planning to sign another agreement, most likely another JV in the Asian territories that is similar to the recent PETRONAS deal.
"We will look at India and Latin America, while continuing our discussions in the Middle East and Asia. This will be our focus for next year."
He also points to the next stage of the company's restructuring program following the changes at its Porto Torres site in Sardinia.
Ferrari says attention will now be turned to its Sicilian site, where there are plans to shut the 150,000 tonne/year linear low density polyethylene (LLDPE) plant in Priolo in August 2013, and one of the two ethylene lines, reducing capacity to 470,000 tonnes/year from 760,000 tonnes/year.
"We're starting to put the new investment in place for the C5 and C9 streams; there is a lot of engineering work being done to be ready for the final shut-down," he says.
In these tough economic climes, and with petrochemical players in the region feeling the squeeze in an increasingly challenging marketplace, many are striving to minimise the effects of the worst downturn in history.
Ferrari says he does not believe there will be any real change in growth for Europe through to the end of the year and believes next year will be equally tough.
He does, however, expect things to improve from 2014.
"I believe that Europe will remain steady," said Ferrari. "There are structural problems that need to be solved before you will see growth and before companies will be motivated to replace capital that is going to other regions.
"For the longer term, from 2014, I believe the situation will stabilise and I think we will see growth and investment coming back - but not of the scale we've enjoyed over the past 10-15 years," he adds.
"Those times have definitely gone because the world has changed, the world has globalised. After the reset we're seeing in the next couple of years, we will have a new business model in Europe that will again provide growth, technology and opportunity."
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