By John Richardson
AT LEAST one global polyolefins producer is rumoured to be shipping increased volumes of resin from the US to Europe in response to the shale gas-derived shift in competitiveness.
“Dow Chemical CEO Andrew Liveris is making a call on the global economy – one of multi-year slow growth – and adjusting the company’s approach to maximise competitiveness in this environment,” wrote my colleague Joseph Chang in this article.
“But with six world-scale crackers scheduled to come on line in the US in the 2016-2017 timeframe, the economy better grow out of its funk by then.
“Liveris expects global GDP growth of around 2.5% in 2013, with China growing at a 6-7% clip and the US at about 2.2%. All figures are below historical norms.
“It is still years away, but the prospect of massive amounts of US ethylene and derivatives capacity coming on in a slow-growth global environment is not something to be relished. Much of that derivatives production will be targeted for exports.”
Dow is pushing ahead with heavy investments in the US, while also announcing the closure of 29 plants - many in Europe. This involves an 8% reduction in its workforce.
Ethylene contract margins, however, still remain in positive territory, as the chart below shows from the latest ICIS pricing European Weekly Ethylene Margin Report.
But it seems logical to us that there will be increasing pressure from downstream industries in Europe for more discounts. Europe is in the midst of a multi-year economic crisis, the resolution of which rests on policymakers recognising that demographics drive demand. Mark Garrett, COE of Borealis, has said that Europe has entered a “ten-year stagnation period”.
How much longer can Europe carry on running its crackers at what blogger Paul Hodges describes as recession level operating rates? As the second chart below shows, Q3 rates remained at 80%.
It seems reasonable, therefore, to assume that more boardroom discussions are taking place about restructuring the European industry.
Unless, that is, European producers are betting on a substantial reduction in the US feedstock advantage.