Death By A Thousand Cuts

ICIS_powerpoint_template_Aug12-1.pngBy John Richardson

COST cutting and disciplined operating rates have been two of the factors that have helped maintain European cracker and polyethylene (PE) profitability at pretty healthy levels since the onset of the global financial crisis in 2008.

So too has the European cluster concept, where producers can share ethylene via pipelines and where there is close integration with refineries. The stand-alone European cracker is a dying breed.

This is all marvellous news for European petrochemical margins (see above), but what about the industry’s customers?

“Life is really tough,” said one plastics converter who spoke to the blog during its current trip to Amsterdam for the 8th ICIS World Olefins Conference.

“We are in a low margin business and have very little ability to resist prices rises from our suppliers who have all the power. It feels like death by a thousand cuts.”

One could argue that buyers are always going to plead poverty.

But the macro-economic fundamentals have been so bad for so long in Europe that what this downstreamer said seems likely to be close to the truth

And if Europe’s economic malaise does, indeed, last another decade, one wonders how many converters will still be around in 2023 to voice concerns about their weak profitability.

Europe can avoid a lost decade if politicians quickly realise that demographics drive demand.

But, sadly, there is no sign of this type of political leadership. The focus is instead on short-term economic fixes in the hope that Europe’s long-term problems will somehow, magically, disappear.

Meanwhile, the petrochemicals industry is equally short-term focused as it worries about the next round of quarterly results and individual bonuses.

It is time for some new thinking.

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