Warning flags fly over Europe’s olefin business

C2 OR% Feb13.png2012 was another difficult year for the European olefin industry. As the chart above shows, based on official APPE data, total ethylene volume was just 18.9MT. This was only just above 2009′s 18.8MT. Before that, we have to go back to 1997 to find an equivalent annual volume. And then the industry was still growing strongly, with its peak volume years still ahead.

The position was the same for the other two olefins:

• Propylene volume was just 14.3MT, just 59KT above 2009 levels.
• Butadiene volume was only 2.1MT, up 34KT versus 2008
• These volumes were after operators had changed severity levels to maximise output

The blog has argued since 2009 that companies needed to recognise the world had changed. Understandably there was reluctance to accept this view, especially when policy makers continued to promise swift recovery. But as they didn’t spot the crisis coming in the first place, it seemed hard to believe they knew what to do about it.

Today the industry is coming round to the blog’s viewpoint, and starting to distrust the policy makers. 4 years is a long time to wait patiently, and then find the situation is still getting worse, not better. As LyondellBasell CEO, Jim Gallogly, told investors last week:

“The global olefins industry continues to experience low operating rates and profitability, negatively impacting our European olefins and commodity polyolefins businesses.”

The key question is ‘what happens next?’. Today’s global slowdown is due to the ageing of the BabyBoomers, nothing else. Over a third of the rich western population are now in their low-spending years. And the following generation is too small to compensate, just as the populations of emerging countries such as China and India are too poor to replace this lost demand.

It is vital that companies understand this, as otherwise they risk throwing out the baby with the bathwater. There is still demand growth, but it is for affordable products aimed at supplying essential needs. If companies instead head in the opposite direction, and try and move up-market into supposedly premium markets, they risk finding themselves with no way back.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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