Price and market trends: Europe olefins players agile amid uncertainty

10 January 2014 09:47 Source:ICIS Chemical Business

Companies will be swift to react to volatile upstream and downstream conditions

European ethylene and propylene market players are not expecting much of 2014 with most taking a fairly neutral stance in terms of any structural changes, despite improving signs on the economy front.

Many sources anticipate a re-run of 2013 as Europe’s ethylene and propylene buyers and sellers continue to build on behaviours adopted over the past 4-5 years.

 

 BASF’s cracker in Ludwigshafen, Germany may be one of many undergoing turnarounds in 2014

Copyright:BASF

The lack of predictability and/or visibility is expected to remain but European ethylene and propylene players have come a long way to address this in the face of ever increasing competition from abroad.

The key word remains agility. Improving the response to upstream and downstream developments while managing inventory levels both up and down the chain very closely.

However, this sometimes leads to heightened price volatility as tight inventory control leaves little buffer and limited flexibility in the European system if unexpected issues arise.

One emerging concern for 2014 is that the planned cracker maintenance slate is much less compared with 2013.

In 2013, a heavy spring and autumn maintenance schedule gave European cracker operators some insurance against weak demand while enabling others to run at higher than the average run rate, but fears over supply length versus feedstock strength soon returned once maintenance shutdowns were complete.

“We will still be at the bottom of the cycle. Hopefully we won’t set any new “low” records and maybe in late 2014 we will see some uptick”, was the view from a propylene consumer.

A trader said: “We are predicting next year to be difficult, we will take very little risk – it won’t be great on ethylene.”

Another source opted not to comment, saying it was best not to expect or say anything, and just be ready to move with each development.

Not suprisingly for a region deemed the worst cost olefins producer, 2013 saw several announcements regarding supply rationalisation - cracker and derivative closures, capacity reductions, as well as some changes to feedstock flexibility.

These included the closure of Total’s NC1 cracker at its site in Antwerp in Belgium and the expected closure of its cracker at Carling in France by 2015.

INEOS announced the closure of its G4 naphtha cracker at Grangemouth, UK by the second quarter of 2015. Repsol said it would downsize ethylene and propylene capacity at its Puertollano Spain site by 2015.

2013 saw several downstream polyethylene (PE) closures/announcements, all concentrated in Belgium, Italy and Germany.

Closing units
Not all derivative announcements were polymer related - INEOS and Celanese said they would close their VAM (vinyl acetate monomer) units in the UK and Spain respectively - effectively half of Europe’s VAM capacity.

On the other hand, the more positive aspects came in with news of some cracker feedstock flexibility – notably INEOS locking down shale gas supply contracts for Rafnes, Norway (also announcing a 50,000 tonne ethylene expansion) and its Grangemouth site.

2014 is expected to yield similar moves as European producers and consumer step up efforts to counteract cheaper and more competitive production elsewhere.

By Nel Weddle