Commentary: Europe polymer boost

Will Beacham

27-Mar-2015

As the central bank tries to kick-start the region’s economy, producers are enjoying strong export demand fuelled by a weak euro as well as an improved feedstock cost position

A combination of improving economic outlook, a weaker currency boosting exports and continued lower feedstock costs are aiding the fortunes of some segments of the European polymers sector, and providing some respite after years of challenging conditions.

 ECB (pictured) wants to kick-start the economy

Copyright: Rex Features

On the demand side, the European Central Bank’s (ECB) decision to unleash its first wave of full-scale quantitative easing (QE) has helped to improve business confidence.

The latest figures for the combined eurozone service and industrial sector purchasing managers index (PMI) data for March approached a four-year high in March, with Germany and France showing strong performances during the month, according to analysts Markit Economics.

There is little evidence that QE has stimulated growth so far, but that expectation may be enough to boost confidence and fuel expansion.

The QE announcement also helped to further weaken the euro, which some say is now heading towards parity with the US dollar. The weak euro makes regional exports more competitive and this is helping boost growth in downstream industrial activity, especially in Germany with its export-oriented economy.

And there is good news for Spain as the Bank of Spain raised its growth forecast for 2015 to 2.8%, together with a forecast that the economy expanded by 0.8% in the first three months of this year. Spain has suffered years of flat or negative growth after a debt-fuelled construction boom went bust during the financial crisis.

Meanwhile UK retail sales jumped by 5.7% in March compared to the same period last year, indicating that British consumers are upbeat about economic prospects ahead of May’s general election.

POLYMER MARKET BOOST
European polymer producers have also been enjoying the impact of the weakening euro. ICIS journalist Linda Naylor has been in reporting for weeks about price rises, shortages of material and tightness in polyethylene (PE) markets. Producers have been exporting more whilst imports have become expensive.

In this issue she reports on buyer “panic” and a market in “chaos” as previous supply issues are compounded by cracker outages by Borealis at Schwechat in Austria and Versalis at Dunkirk in France. Spot prices have soared but there is very little availability is all grades.

European polyvinyl chloride producers are also becoming increasingly competitive and, as we report on pages 10 and 11, Turkey is becoming a more attractive market where Europe can now compete against US exporters, as the US dollar strengthens.

Lower oil prices are improving the cost positions of European commodity chemical producers against their peers in the US and Middle East. Energy-intensive sectors such as chloralkali should also benefit from lower energy prices in Europe, though they still remain at a major disadvantage compared with other regions.

CHALLENGES REMAIN
Nevertheless, Europe still faces difficulties in an increasingly competitive landscape. Creating economies of scale is one solution and Solvay together with INEOS moved one step closer to achieving that in late March as they work towards merging their chlor alkali businesses.

They announced the divestment of a range of chlorvinyl assets to International Chemicals Investor Group (ICIG). This is a stipulation of EU competition authorities for the merger.

The deal will create one of the world’s largest chlorvinyls businesses, recording pro-forma sales of over €3bn in 2013, and featuring assets in 14 sites across Belgium, France, Germany, Italy, Norway, Spain, Sweden and the UK.

The new group – known as INOVYN – should have the critical mass to compete more effectively against players in China and the US.

Slowing increases in China and growth in capacity there and in the US will continue to keep European players on their toes, as will longer term factors including demographic issues such as the aging population.

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