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When Does Consolidation Become A Strategic Problem?

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By John Richardson on 10-Sep-2010

All our yesterdays… the ICI Runcorn site in its heyday


Source of picture: Chesterchronicle.co.uk



By John Richardson

Yesterday’s blog post on Petronas illustrates once again how the state-owned giants, albeit in this case one that is about to undergo a partial IPO, are increasingly dominating the global petrochemicals industry.

The history of the European industry – with the now effectively defunct Imperial Chemical Industries (ICI) as a prime example – was one of government-directed and/or government-owned champions providing the basic raw materials – i.e. petrochemicals – for overall industrial development, says my fellow blogger, Paul Hodges.

But some of the old Western majors are increasingly being pressured by feedstock-advantaged or strategically-driven state-owned Middle East and Asia majors, such as Petronas, Sinopec, PetroChina and SABIC. By “strategically-driven”, I mean that making a profit is not necessarily the major motive.

In theory, as we’ve written many times before on this blog, we should see more consolidation in Western Europe in particular (the situation on the ethylene derivatives side of the business in the US seems to have changed for the long-term because of the ethane-gas advantage. As my colleague Nigel Davis suggested in a recent ICIS news article, the US might even see capacity additions that would serve Latin American growth).

Thanks to a discussion with Paul yesterday, here are a few questions to ponder over your morning coffee:

*Can European countries afford to see too much capacity closed down if this jeopardises security of vital raw-material supplies to all those downstream industries so important to their economies?

*At what point should governments step-in (what constitutes too much capacity closure?) and save companies?

*Given that Western European companies are democracies, and, as a result, are often run by politicians with the attention span of hyper-active two-year-olds, is it realistic to expect coordinated and commonsense intervention?

Answers must be no more than 3,000 words, please, on lined paper and in legible handwriting, and NO chewing gum…