By Malini Hariharan
Many Asian aromatics producers are optimistic that the worst is over and a gradual improvement in global demand coupled with firm Chinese demand will help them through 2009.
There is also the expectation that a pressure on refining margins will lead to more plant closures which would also help the aromatics business.
A source at an integrated refinery and aromatics producer points out that nearly 2m bbls/day of refining capacity addition took place last year and another 800,000 bbls/day of capacity is due by next year.
"This will be offset by reduction in capacity in Europe and the US. We have seen reports that suggest that nearly 7m bbls/day of capacity will have to close," he says.
"In the future the refining industry needs more investment to meet environmental regulations. Investment at old plants this investment is not justified and they will have to close," he adds.
An industry analyst says that every refiner talks of closures but wants another company to implement them.
Refiners with high cost facilities in the West are the ones under greatest pressure but pushing through a capacity reduction programme is not always easy as Total's experience in France shows.
The company confirmed on 8 March that it would permanently shut down its Dunkirk operations due to a collapse in demand. The refinery had been idled in September last year.
Despite assurances of zero job losses unions were quick to call for a new strike.
The first source says that some refineries may limp along for a year or two. But eventually poor profitability will force a shutdown although governments may have to step in to help companies close plants.