Europe Faces More Middle East Pressure

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By John Richardson

A closer look at last year’s polyolefin trade flows illustrates just how vulnerable European producers will be over the next few years to rising pressure from Middle East imports.

“The volume of trade in Western Europe (intra-regional plus imports) for all the grades of polyolefins and polyvinyl chloride (PVC) fell by between 3% and 18%  in 2009,” said Jean Sudol, president of International Trader, the New York-based trade-data analysis service.

“But at the same time imports from the Middle East actually increased.”

A slowdown of imports into China seems inevitable this year after the staggering increases seen in 2009. For example, low-density polyethylene (LDPE) imports rose by 90% over the previous year to 1.34m tonnes and polypropylene shipments were up by 49% at 4.2m tonnes.

“A reduction in government stimulus, new capacity in China and the difficulty in repeating the sheer size of imports in 2009 points to a slowdown in 2010,” added Sudol.

“My guess is that imports won’t fall back to 2007/2008 levels and will still be high in 2010, but not as high as in 2009.”

So the Middle East producers, as they ramp-up capacity this year and in 2011, will be searching for other destinations to compensate for a dip in demand from China. Europe is an obvious port of call.

ICIS pricing’s Worldwide ethylene plant report shows that in the five years from 2008 to 2012, around 29m tonnes/year of new ethylene capacity will be added.

Nearly 16m tonnes/year will be added in the Middle East and around 14m tonnes/year in Asia, of which China accounts for nearly 7m tonnes/year, says the report.

This has partly been offset by the 2m tonnes/year that has closed in North America.

However, some 16m tonnes/year of this capacity growth was still to become operational as of the end of February 2010, the report adds.

“Ethylene demand actually fell in 2008, as economies crashed and extensive de-stocking took place throughout the value chains,” wrote my colleagues Paul Ray and Peter Taffe in a recent article on our magazine, ICIS Chemical Business.

“In 2009, demand recovery has been weak. In normal market conditions, a rule of thumb indicates that ethylene demand globally grows at 5m tonnes/year. “

Paul Hodges, UK-based consultant with International e-Chem, added: “These new Middle East plants are going to run at close to the optimum rate of 93%, regardless of market conditions, because of their feedstock advantages,”

A painful reckoning is clearly at hand with restructuring likely to be given some extra impetus by problems in the European refinery industry.

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