Commentary: Surprise lift for Europe

Europe’s chemical sector has had a pretty decent 2015 so far – at least far better than most people were expecting at this time last year. However, structural challenges remain. That was the message from delegates at the 49th European Petrochemicals Association (EPCA) meeting in Berlin.

Many cracker operators are still benefiting from the weak euro, which has made imports more expensive and caused customers to switch purchasing from domestic producers. Meanwhile, a series of force majeures tightened many markets, especially in polymers, sending prices and margins rocketing for other producers.

Isopix/REX Shutterstock Euro drop has helped boost Europe’s fortunes

Quantitative easing (QE) in Europe, meanwhile, may have helped to stimulate demand, and recovery in some countries – such as Spain – has improved demand for chemicals. House prices across the eurozone have started to rise quite strongly. The latest figures, released on 7 October, showed a 1.2% rise in April-June compared with the previous three months.

The lower oil price has narrowed the competitiveness gap to ethane-based regions, although it still remains significant. According to trade group Cefic, the price drop has been a relief for the region, although it does not solve all its problems. Energy and feedstock prices are now around double those of the US, down from 3-4 times before the price drop. Shale gas is still seen by many as an obvious way to balance Europe against other regions. But restrictions and bans in many countries make large-scale exploration and production unlikely any time soon.

Brenntag CEO Steve Holland pointed to stability in Europe compared to a recessionary environment over the past few years. “We were hoping for a little bit more with the lower oil price, QE, and the weaker euro, and we haven’t seen that push forward,” he said.

Meanwhile, IPO (initial public offering) fever has hit the European distribution market, with both Azelis and 2M Holdings revealing plans to go public. If these are successful, this would signal a reasonable level of confidence in Europe from the financial sector.

Azelis has grown strongly in Europe, with sales up 8% compared to last year. CEO Hans Joachim Muller said he aims for the group to double in size from around €1bn distribution and agency sales in 2015 to €2bn, and then launch an IPO by 2020. 2M Holdings CEO Mottie Kessler is aiming for a partial IPO on the London Stock Exchange’s AIM market in 2017.