INSIGHT: Europe’s olefins output up despite low growth

04 July 2014 17:33 Source:ICIS News

By Nigel Davis

LONDON (ICIS)--Olefins output has grown modestly in Europe, data released this week show, a reflection of improved demand as economic growth has strengthened.

Ethylene output in the first quarter was up 4% year on year and almost on a par with that in the first quarter of 2012. But it was still well down on pre-crash levels and the output achieved as stimulus-driven markets rebounded in 2010 and 2011.

Demand has gone into some re-stocking and was rising towards the end of the quarter, particularly compared with the start of the year.

Encouraging news, perhaps. Yet, producers are still very much playing a balancing game and trying to encourage downstream demand growth.

While economic indicators have looked stronger the petrochemical markets in Europe show little direction other than gradual improvement from a difficult 2013. That has been the case through Q1 and into Q2.

The January to April production data collated by trade group Cefic in its latest monthly sector analysis show a welcome increase for chemicals generally but highlights the weak situation in petrochemicals

Europe’s petrochemicals output has continued to contract and was down 4.9% year on year in the January to April period.

“Petrochemicals monthly output has remained below trend growth rates since September 2011, and is far below its post-crisis peak during first quarter 2011,” it said.

None of this is good news. ICIS blogger, Paul Hodges looks at Europe’s cracker operating rates in his latest posting and points out that they were just 82% in what is seasonally the strongest quarter. These rates are nowhere near the 90% plus level normal before the crash.

“The only good news is that the US and Middle East move into ethane feedstocks has helped keep propylene and butadiene prices higher than usual,” he says.

“So European producers, like those in Asia, have been benefiting from higher overall netbacks than would otherwise have been expected. But, of course, this also helps to destroy downstream demand, as end-consumers find it harder to afford the products being produced.”

We see that almost every day in the intermediates markets where olefins prices have tended to reflect the movement in naphtha costs, and ultimately crude prices, and caused strain downstream.

“The sector continues to grow, but we are not out of the woods yet,” Cefic director general Hubert Mandery said when the pan-European trade group’s analysis was released. Cefic is particularly concerned about the impact of the EU’s energy and climate change policies on the chemical industry’s costs and on the industry’s ability to operate competitively in a global environment.

“Our overall health and ability to compete depend on policy that ensures secure and competitively priced energy and feedstock,” Mandery added.

These issues have become critical for the sector in Europe.

Following elections in May, the EU has a new parliament (which met in a plenary session for the first time on Tuesday 1 July) and last week member states agreed, with some dissention, on a new president for the EU’s executive branch, the European Commission.

The chemical industry has stepped up its lobbying as the new parliament takes shape.

EU national chemical industry associations and representatives from the EU’s nation states, for instance, are meeting early this month to try to decide how they might push forward the chemical and manufacturing industry agenda.

The European Council meeting on 27 June discussed the progress made towards, it said, a final decision in October on the EU’s 2030 climate and energy framework.

In February MEPs had called the European Commission’s climate and energy proposal “unambitious” and “short-sighted”.

On 27 June, the Council, referring to policy over the next five years, said: “Geopolitical events, the worldwide energy competition and the impact of climate change are triggering a rethink of our energy and climate strategy.”

Read Paul Hodges’ Chemicals and the Economy blog
Bookmark John Richardson and Malini Hariharan’s Asian Chemical Connections blog

By Nigel Davis