INSIGHT: Europe petchem players upbeat at EPCA 2017, face digital challenges

By Nigel Davis

LONDON (ICIS)–European petrochemical industry players were upbeat at the 51^st European Petrochemical Association (EPCA) meeting in Berlin last week. 

Producers are broadly optimistic given the economic backdrop. For the core of the industry, the decline in the cost of naphtha and the ready availability of LPGs (liquefied petroleum gases) and ethane underscore a degree of competitiveness that has not been apparent for years.

Petrochemical producers in Europe have continually to work hard at getting it right whether at the cracker or the derivatives plant, in the supply chain or in relation to customers demanding increasingly sophisticated products and services.

They operate in a high energy cost and a strict regulatory environment but have developed a degree of sophistication designed to help them surmount the challenges.

Indeed, the flight of capital that has been threatened for so long has not materialised. An equilibrium seems to have been reached and, in the current and forecast operating environment, is partly swinging the other way.

Petrochemical companies want to invest in Europe again to help them make the most of the region’s large and sophisticated downstream markets. Plans have been prepared for recently announced olefins and derivatives investments. More might be expected.

The lower crude oil price has changed the operating environment and also helped stimulate economic growth.

Of concern has to be the tapering of quantitative easing planned by the European Central Bank (ECB) and the potential fallout from Brexit.

In Berlin, however, most of those concerns had been brushed to one side. Conference participants were happy to concentrate on the positives and where more cash might be generated in future rather than whatever clouds there might be on the horizon.

Reporting from the event, and from the business sidelines, highlighted the ways in which producers, consumers, traders and the supply chain in Europe are reacting to regional and global events.

Cracker margins have been strong this year helped by the fact that cracker output is up while nameplate capacities have been reduced.

Balanced supply and demand in olefins and aromatics has helped buoy prices in the benign oil price environment.

The point that the economics of naphtha cracking have changed completely was made by industry executives and commentators alike. Look back to July 2014 and the naphtha price in Europe was $950/tonne. As the 51^st EPCA started, the naphtha price was around $530/tonne.

That cost differential, coupled with the way in which cracker operators have been so adept at holding on to product prices and subsequently to passing on feedstock price fluctuations directly down the chain, have characterised the past few years.

This ICIS podcast picks up on the fact that cracker operators in Europe were expecting 2017 to be a year of two halves – first half good, second half not as good – but that the global tightening of supply and demand and the price pressure caused by Hurricane Harvey – have shifted the outlook.

Producers in Berlin were very optimistic and happy. In aromatics, Hurricane Harvey had provided greater opportunity for exports. Recent M&A activity had demonstrated the robustness of the nylon chains in Europe.

It cannot be forgotten, however, that the petrochemical markets are global so the new polymer production capacities coming on-stream in the US and India are expected to influence the global, and hence the European, picture, although not always in the ways some industry onlookers expect.

China’s influence as a producer and consumer of petrochemicals and plastics is clearly felt.

On the horizon now for Europe’s petrochemical players are the end of the Golden Week holidays and the subsequent impact on China markets and the moves by the Chinese authorities to force plant shutdowns to help reduce environmental pollution.

The Golden Week holidays have created a hiatus and clouded the outlook somewhat, but industry players will be watching developments in Catalonia, where there have been calls for a referendum, with keen interest. In the polyvinyl chloride (PVC) market there is concern about the on-going impact of conflict in Syria and Iraq on demand in Turkey.

Petrochemical producers, traders, logistics providers and consumers have an array of new digital technologies at their disposal and the business sessions of the EPCA conference were devoted to discussing the uptake and application of digitalisation in the sector.

Certain technologies have the potential to disrupt businesses and supply chains, opening up opportunities for current and new participants.

Digitalisation is making relatively slow progress in petrochemicals but executives were clear that their company’s would need more new talent in future to grasp Industry 4.0 opportunities.