Feedstock, Olefins and Aromatics
INSIGHT: Petrochemical players challenged by global game
ICIS News : 4-Dec-12 17:07
By Nigel Davis
LONDON (ICIS)--Petrochemical players globally face considerable strategic challenges as feedstock and market trends shift. The globalisation of the industry continues apace and no company can rest on its laurels as the tectonic plates underpinning the sector move.
Market growth is in the east and in regions such as Latin America. Demand in Europe and the US remains substantial but it is changing, as are feedstock dynamics. The opportunities for players in the Middle East to participate in advancing regional economic growth are immense but they are losing their considerable ethylene chain feedstock advantage.
It is not just markets that are increasingly globalised. Petrochemicals technology now moves freely around the world, as does the talent needed to drive forward-looking companies. The fundaments of the business have not changed but the environment in which petrochemical players operate has.
Producers face a basic issue of how to compensate for their inherent weaknesses within the increasingly global market set-up, strategy consultants Roland Berger suggested in a report published in November. Strategic decisions have to be taken whether they operate in the Americas, Europe, the Middle East or Asia.
Who will capture new market demand is still a completely open question, the consultants say. “Will it be players from the fast growing Middle Eastern or Asian countries, or will American and European companies stage a strong global comeback?” they ask.
Producers in each of the regions face regionally specific operating challenges. But structurally, the game has become much more complex and requires deep analysis of what moves might and can be taken to position the company best for the future. This is an asset-intensive industry and strategic moves are costly.
European petrochemical players, for example, are generally seen as operating under intense cost and regulatory pressure - their older assets, perhaps not placing them in the best global position. Yet business in Europe has become increasingly specialised and producers much more adept at managing feedstock and other costs.
Some clever approaches to feedstock access have been considered and are being implemented. The region is also ahead in the pursuit of alternative feedstocks and more specialised, customer-oriented product offerings.
Roland Berger asks the key question whether European players should shut down older plants, replace them or simply upgrade. Yet how does this tie into the core need in petrochemicals of acquiring feedstocks and of gaining market access?
Joint ventures, merger and acquisition (M&A) activity and organic growth all play into this mix. The most successful players might be those who strike the right deals with challenged producers in the Middle East, for instance, thereby enabling each to grow.
The low-cost ethane advantage currently enjoyed by Middle Eastern players is expected to erode, at least in the medium term, so these producers have to look carefully at their options. Moving further downstream into important petrochemical intermediates, into specialties, and even closer-to-the-end consumer businesses, is a possibility.
Roland Berger feels that India, even while it is seeking to expand its own petrochemical industry, is a key growth market and an important asset from Middle East producers. Gulf petrochemical companies, however, need to strengthen their knowledge and skills base.
West European petrochemical companies are seen as key partners where strengths and gaps are largely complementary.
“Is buying European companies better than building knowledge through joint ventures and cooperation agreements?” Roland Berger says. “What would the business case look like for potential partner companies to invest in the Gulf and not in China?”
How to address China demand successfully is a critical question. An opportunistic export position is a credible approach but not a long-term option.
“Who are the natural partners for Asian companies?” Roland Berger asks.
“Is advanced technology from Europe and the US, or strategic access to feedstock more important in the medium term? Are there ways to combine them?”
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By Nigel Davis
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