Europe ethylene output could decrease up to 8% in 2020 on coronavirus

Author: Will Beacham


BARCELONA (ICIS)--Coronavirus impact could cut Europe ethylene production by as much as 1.68m tonnes in 2020, compared with 2019, with cracker turnarounds and even force majeures common place in the second quarter, according to analysis by ICIS.

These preliminary scenarios assume a drop in operating rates in the second quarter of 2020 as the coronavirus hits downstream demand, pricing, and margins, according to Paolo Scafetta, ICIS Senior Analyst, Olefins.

He said there would be a gradual recovery from the second half of the year as the epidemic is contained.

With economic growth likely to slow or even contract in Europe until the epidemic abates, Scafetta assumes cracker operators will trim rates or take other measures to maintain profitability.

“They could extend scheduled maintenances, cut operating rates or, in the final instance, declare force majeures to avoid losses in the second quarter, especially April and May,” he said.

The plummeting oil price will also have an impact.

“According to my preliminary forecast, cracker margins will rise in March as feedstock naphtha prices decline against the March ethylene contract price of €920/tonne," said Scafetta.

"But, in April, I expect margins to fall if the ethylene contract price falls heavily while the naphtha decline decelerates.”

In the low scenario, ethylene production dips to 19.37m tonnes, a fall of 8% on 2019 production which is estimated at 21.05m tonnes.

Scafetta also models a base case decline to 20.38m tonnes and high scenario of a rise to 21.46m tonnes.

Scafetta’s high scenario increase is based on the fact that 2019 was a tough year for Europe ethylene production, which has been in decline since 2017.

As new ethylene production from the US shale boom ramped up, imports have increased while exports have declined.

There was also a heavy cracker maintenance schedule in 2019.

According to Nel Weddle, Senior Editor, Olefins, at ICIS Europe said: “2019 was heavily impacted by turnarounds and loads of unplanned issues so output will show that. Demand was under pressure from the trade war - otherwise we would have seen more of an impact on pricing.”

Weddle said more exports could be possible as low naphtha keeps margins healthy, while at the same time allowing producers to agree to the low netbacks necessary to get product out to Asia.

However the onset of the turnaround season might limit volumes and exports.

The coronavirus is now spreading fast across Europe and is likely to hurt downstream demand as normal economic activity is disrupted by government measures to reduce the speed and level of transmission.

Curtailment of chemicals and industrial production has not yet been reported in Europe.

But Italy – the world’s eighth largest economy, and number three in Europe – is now in lockdown and other countries may follow suit.

Front page picture: Italian police at a checkpoint in Lodi in the north amid measures to contain the spread of coronavirus 
Source: Francesca Brunati/EPA-EFE/Shutterstock 

Focus article by Will Beacham 

Interactive content by Miguel Rodriguez-Fernandez