Commentary: Glimmers of hope

31 May 2013 18:24  [Source: ICB]

News that French group Total is investing €1bn ($1.3bn) in upgrading its refining and chemicals production facilities at Antwerp, Belgium, is a welcome sign that global oil and chemical companies are still committed to the region.

The plans include a new hydrocracking unit and a scheme to convert refinery gases into low-cost petrochemical feedstocks, which will reduce reliance on expensive naphtha as a raw material. The site's oldest polyethylene (PE) plant will be closed by mid-2014 and an idled steam cracker at the site will be closed permanently.

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The company is investing time and money to find innovative ways to cut feedstock costs in Europe. Total also unveiled plans for a new ethane steam cracker at Port Arthur, Texas, revealing the importance it places on tilting the group towards the most advantaged feedstocks possible, wherever they may be.

Meanwhile there are other signs that the situation may be stabilising in Europe. Chemical companies with a heavy reliance on the automotive sector there may also have been cheered somewhat by recent figures for new vehicle registrations.

According to the European Automobile Manufacturers' Association, new registrations for commercial vehicles in the EU increased by 3.6% year on year in April, the first rise since December 2011. Some may say that to take this as good news is "grasping at straws" because there were an average of two extra working days compared to April 2012. But that cannot account for a 43% increase in UK registrations of light commercial vehicles up to 3.5 tonnes or growth of 11.5% in Spain. The association does point out, however, that the total number of registrations is around 100,000 below pre-crisis levels recorded in 2008.

News that the European Commission has decided to relax deficit reduction targets for six member states could also be positive. France, Spain, Poland, Slovenia, the Netherlands and Portugal should now have more scope to implement policies that will stimulate a return to growth. Also to be welcomed are some of the policy overhauls the Commission is proposing to try to free up labour markets, reduce unemployment and stimulate growth.

France is a particular target: the Commission says the government should cut employer social security contributions and reforms of the unemployment benefit system to make sure there are enough incentives to work. Spain, meanwhile, is being asked to pursue unpopular reforms that have cut job security for older workers.

By: Will Beacham
+44 20 8652 3214

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