INSIGHT: European PE producers confronting tough competition

09 October 2013 17:08  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS)--Europe will come to rely more heavily on imports of polyethylene (PE) as lower cost players ramp up production and domestic capacity is closed.

Scenarios presented by SABIC this week suggest that imports from the US could climb to 1.0m-1.9m tonnes/year by 2020 from just 100,000 tonnes in 2012 as producers in North America capitalise on low-cost ethylene.

Two scenarios highlighted by SABIC CEO Mohamed Al-Mady suggest that Europe’s PE imports from the Middle East could rise to 2.6m-2.8m tonnes by 2020 from 1.8m tonnes in 2012. What SABIC calls “local sales” in Europe would contract from 10.2m tonnes to between 7.9-9.9m tonnes.

Europe PE scenarios, SABIC 

The polymers production landscape is changing with North America’s shale revolution. European producers are looking hard at their cost structures as demand suffers in a weak economic environment.

SABIC figures show European polyethylene demand at 12.7m tonnes in 2012, down from 14.8m tonnes in 2007 and 100,000 tonnes below demand in 2002.

Demand this year has contracted alongside the economic uncertainty. The weakness also masks trends that are likely to mean that PE consumption growth will not be as strong as in the past.

Down-gauging, for instance, is believed to be a significant factor in lower volume demand in 2013.

“Under our two scenarios, by 2020, European manufactures will face a decreasing market of around 0.4m tonnes to 2.4m tonnes,” Al-Mady said at a business session on global leadership at the European Petrochemical Association (EPCA) meeting in Berlin this week. “This will potentially result in asset closures and decreasing margins for the European polyethylene industry,” he added.

Al Mady told ICIS in an interview on Monday that SABIC was likely to make decision on its proposed cracker in the US by the end of next year.

“We are studying different opportunities in the United States with a few companies and different sites based on shale gas,” he said.

SABIC is considering its global supply footprint as shale gas makes its impact on the sector. Not surprisingly, it sees shale gas as a game changer in petrochemicals. If it built in the US then the plant would supply domestic markets and markets in South America, to replace product currently supplied from Saudi Arabia, Al-Mady said. The project would be an opportunity to invest at scale close to customer markets.

In Europe, SABIC, alongside other producers, has looked at its operational profile and made some changes.

It is restructuring with the loss of more than 1,000 jobs and has decided to close some assets in the Netherlands.

“We are taking a very close look and evaluating every plant by plant, evaluating our supply chain, our procurement, benchmarking, our cost with the rest of the field, and there are some efficiency programmes that are under implementation … hopefully we see the results at the end of 2014,” Al-Mady said.

“The European petrochemical industry is challenged by factors within and outside. Within is the ageing population, regulations and decreased innovation and science output compared with China and the US.

“From the outside, it’s the shale gas threat that is coming sometime around 2016, where the US export is going to start hitting Europe, especially in the polymers market, as well as methanol and fertilizers,” he added.

The European petrochemical industry faces some stiff challenges with feedstocks and energy the most significant. But Al-Mady touched on other issues as diverse as regulation and education that are eroding Europe’s position in the sector.

“Statistics pertaining to patents and higher level engineering & science graduate rates show that the strong foundation and dominance in Europe for scientific knowledge is eroding compared to [the] US and China,” he said.

The regulatory constraints on shale gas drilling could make European industry weaker, he suggested.

Additional reporting by Franco Capaldo

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By: Nigel Davis
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