12 November 2012 12:31 [Source: ICIS news]
LONDON (ICIS)--European petrochemicals companies are likely to face growing margin pressure in the future due to uncompetitive feedstock prices, an ageing asset base and increasing competition from Asia and the Middle East, consultancy Roland Berger said on Monday.
European production assets are becoming increasingly uncompetitive, according to the company, with the youngest cracker in Europe constructed in the mid-1990s.
Companies also face a growing shortfall in output capacity compared to Gulf and Asia-based incumbents, with the average cracker in those regions producing around 1m tonnes/year - more than double the European average.
Demand for petrochemicals is expected to grow 6% year on year to 2015 in China, and up to 11% in the Middle East, compared to 1% in Europe and the US, the company said.
Roland Berger partner Jaap Kalkman said: "Fourteen out of 43 European plants will no longer be profitable by 2015. This will result in a 26% drop in capacity. At the same time, the players in Asia or in the Gulf region are building new, state-of-the-art installations with capacities of a million tons. The European plants can hardly handle half as much output."
Expensive feedstocks, higher costs and tighter regulations are also putting pressure on margins and making competition difficult for European and US players, and also make it difficult to close the capacity gap between mature and emerging petrochemical regions, according to Roland Berger.
“Closing this gap by investing in new plants or in plant upgrades in Europe will need careful consideration, given the considerable size of such investments and the significantly higher price level for construction work in Europe,” the company said in an industry report.
Europe still retains a competitive advantage due to the quality of education and research in the region, Roland Berger said, bolstered by several waves of cost and process optimisation in the industry.
The sophistication of European petrochemicals companies leaves them well-placed to access cheaper feedstocks and growth markets elsewhere, according to the company.
"Companies must compensate for these competitive disadvantages by leveraging their technological expertise and market know-how to secure access to growth markets and cheaper raw materials outside Europe," Keller added.
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