INSIGHT: Europe cracker operating rates slump as demand drops away

Nigel Davis

13-Sep-2019

LONDON (ICIS)–How bad have operating conditions become?

Slower global economic growth against the backdrop of heightened trade tensions – specifically the US-China trade war and, in western Europe, the looming car crash that is Brexit – we generally know about.

But there is growing anecdotal evidence that the chemical industry really is feeling the pinch: looking much more closely at costs and remaining tight lipped about what, in other circumstances, would be disastrous operating rates.

There is a seeming lack of concern in the European olefins market about product availability.

Shouldn’t customers be seeking out the last tonne of propylene, given the planned and unplanned cracker shutdowns that have reduced supply? Apparently, they are not.

Some sources think the market looks as bad as it did in 2008, around the time of the global economic crisis.

Sentiment in the European ethylene and propylene markets this week remains bearish overall, according to ICIS. Players have again noted limited impacts from a raft of ongoing production outages.

Unplanned issues at crackers in Dunkerque, Wesseling and Mossmorran continue, while operations are back online following technical problems at crackers in Burghausen, Moerdijk and Sines, according to market sources.

The situation appears worst in the non-polymer markets. Players seem to be treading water fast with the propylene market looking as bad as in 2008.

ICIS reported last week that unplanned and ongoing outages had not shifted the depressed outlook for propylene in Europe.

The fact that the outages had had no discernible impact on the market in terms of spot activities and pricing was serving as an eye-opener for propylene players.

The situation has not improved – with demand having already moved from “terrible” to a “disaster”.

Polypropylene (PP) demand has been described as relatively steady, although it must be suffering for the automotive downturn.

Non-polymer derivatives production has been running at rates of 50% or lower at some plants. There is clearly no need for additional volumes.

This should be a buoyant period for demand, ahead of Christmas and end of year holidays, but that is not currently the case.

Looking back a couple of months, industrial production in Europe was down month to month and year on year in July according to the latest statistics.

Industrial production was down in the eurozone and the EU by 2.0% and 1.2% year on year. A 5.3% year-on-year slump in industrial production in Germany in the month rang alarm bells.

“Given the precarious global environment, a meaningful pick-up of industrial activity in the near term does not seem likely in the short term. Such weakness suggests that eurozone GDP growth will continue to be sluggish in Q3 and we expect it to mirror the 0.2% quarterly pace seen in Q2,” said analysts at Oxford Economics.

The US manufacturing sector was in its fourth month of weakness in August, the American Chemistry Council (ACC) noted last week.

Business capital investment is pressured by the trade war and geopolitical uncertainty.

US chemical industry shipments were down in July while chemical industry trade had contracted had contracted very month from February to July on a year over year basis.

The ACC’s data show that global chemical industry operating rates have continued to track downwards.

The ACC’s global chemicals production index was down 0.1% in July. Headline global production was up only 1.7% year on year an a three-month moving average (3MMA) basis.

Global capacity was up 3.6% year on year in July, with global capacity utilisation down 0.3 points at 82.9%.

This is down from 84.4% in July 2018 and well below the 1987 to 2017 average of 86.4%.

A slowing US and a depressed Europe, combined with a China struggling with the impact of the trade dispute with the US, does not make for a pretty picture.

In Europe, olefins demand is not expected to improve this year. A close eye is being kept on stocks with no-one buying now more than they need.

What happens then, when the unplanned cracker issues are resolved and scheduled maintenance is over?

By Nigel Davis

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