INSIGHT: Circular economy demands innovation and investment from petchem suppliers

Author: Nigel Davis

2019/10/07

BERLIN (ICIS)--Is the economic slowdown morphing into something more?

A question almost certainly posed by delegates to this year’s European Petrochemical Association (EPCA) meeting in Berlin.

The automotive sector downturn will hit some petrochemicals and plastics producers hard, with China’s autos sales down 14% in an annualised rate, for instance.

Chemicals exports into the China market have slowed taking the icing off the cake for businesses that have had a remarkably good and long-lived run of better-than-expected profitability.

Another key end-use sector for petrochemicals and plastics, construction, is slowing in Europe, according to sources at the EPCA annual meeting.

Civil construction is holding up well, but will the slowdown in other segments mean plant closures next year in some of the construction-oriented petrochemical chains?

Growth for the petrochemical and plastics industry has been anchored in world trade so the US-China trade war and growing inter-regionalisation is bound to have had an impact.

Some adjustments are inevitable, EPCA president Marc Schuller, pointed out ahead of the Berlin EPCA event.

He also suggested that we may be seeing a shift in the value chain away from feedstock, or intermediates, suppliers towards those companies operating closer to the end-use market.

Petrochemical prices were well down year on year in the third quarter but the drop in crude oil related feedstock costs meant that cracker margins in Europe have been upheld to a great extent.

In some other petrochemical markets, however, lower prices have proved to be much more problematic.

The worst may or may not be yet to come but there is no doubt the sector is cycling down. Chemical companies (should) know how to handle that.

The petrochemicals industry has been on the downslope of the cycle for the past eighteen months, INEOS Director, Tom Crotty, said in an interview with ICIS on the sidelines of the EPCA in Berlin.

It may take another eighteen months to hit the bottom, he suggested.

INEOS has always aimed to be cash positive at the bottom of the cycle, Crotty added. The company will continue to pursue its major investment projects and seek bolt-on acquisitions.

“We are still on the acquisition trail,” he said, adding that in terms of capital investment “I think you will see more of the same” going forward.

INEOS, of course, is progressing with its investment in the first new cracker project for Europe in decades; it will be a nearly 2m tonne/year facility including an ethane cracker and a propane dehydrogenation (PDH) plant.

INEOS is bringing US ethane economics to deliver product in Europe with this investment.

The company is simply importing the feedstock rather that the polymer or the other ethylene-based intermediate.

The project, Crotty said, will be as competitive as a US Gulf Coast cracker on delivered product to Europe, adding that Project 1 will improve the blood line of European olefins.

The investment is being made on the cusp of a period of great change for the European and the global petrochemical sector.

Mandated plastics recycling targets in Europe and a greater focus on the circular economy is prompting a wave of innovation.

This is a core issue for the sector, with chemical recycling a clear target.

Crotty will speak on the topic in the opening session of the EPCA meeting on Tuesday 8 October, when the broader issue of how the petrochemical value chain can help drive Europe’s growth is discussed.

Innovation in terms of processes and products has always been a key enabler for petrochemicals and plastics companies, and more efficient management of the value chain is becoming a differentiator.

However, the character of that value chain is changing rapidly driven by recycling and greater circularity.

How companies address recycling challenges and grasp the opportunities for innovative thinking within the circular economy will mark them out over the next five to ten years.

By Nigel Davis