High oil prices take European operating rates to record lows

C2 ORAug13

Life doesn’t get any easier for Europe’s olefin producers and the consumers who depend on them.  As the chart shows, based on latest APPE data, operating rates averaged just 78% in H1.  This is almost as bad as H1 2009, when they were 76%.  And it is a long way away from the 90% levels seen routinely until 2008.  The detailed figures are almost more depressing:

  • Ethylene production was just 9.3MT, versus the 10.3MT average seen between 2000-12
  • Q2 production at 4.6MT was the lowest since 1998, lower even than 2009
  • Q2 propylene production at 3.5MT was the lowest since 2002
  • Butadiene production at 456KT was only 20KT above 2009, and otherwise the lowest since 1997

This dreadful situation may well continue, as long as central banks’ stimulus programmes continue to support oil prices at today’s unrealistic levels.  Producers have little choice but to pass these prices down the chain, even though they cannot be absorbed by end-consumers.  So volume and operating rates continue to make record lows.

There is also no easy solution within the industry’s control.  Its feedstocks represent only a small proportion of refinery output, and so its destiny is heavily dependent on upstream developments.  And European governments simply cannot allow many more refineries to close because of energy security risks:

  • Europe is already over-dependent on diesel imports, for example – a precarious position, given that most cars run on diesel and not gasoline
  • Meanwhile, Europe has developed a major gasoline surplus, which can no longer be easily exported to the New York Harbor market, due to lower US gasoline demand and the increased use of ethanol

Oil prices at today’s levels are thus the proverbial straw that potentially breaks the camel’s back as far as petchem producers are concerned.

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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