Commentary: SABIC layoffs signal Europe's woes

19 April 2013 09:16  [Source: ICB]

News that SABIC is to cut 1,050 jobs and close plants in Europe shows just how tough market conditions are in Europe right now.

The Saudi Arabia-headquartered company is quite candid about the challenges the whole industry faces in the region. It said demand has been structurally weakened by lower consumer spending on houses, cars and appliances, as well as less expenditure on infrastructure projects.

On top of that, margins have been squeezed by Europe's reliance on naphtha as a feedstock. SABIC said: "Competition has intensified from other regions, especially from the United States - which has the advantage of shale gas development - and Asia, which has increased local production capacity and consumption."

Meanwhile, Dutch AkzoNobel last week reported a 9% drop in first-quarter operating income and said it could see no improvement in challenging European trading conditions.

So where do we go from here? Those who choose to simply wait for the economy to improve may have to be very patient. INEOS has already put plans in place to try to grab some of the US advantage by transporting ethane across the Atlantic. Perhaps its competitors will also start thinking creatively about the challenges they face.

By: Will Beacham
+44 20 8652 3214

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