INSIGHT: Petrochemical producers in Europe anticipate better operating environment

Author: Nigel Davis

2020/10/02

LONDON (ICIS)--Ahead of the virtual European Petrochemical Association (EPCA) annual meeting next week, sector players are cautiously eyeing a better operating environment towards the year end. Some detect signs of a surge in buying interest in the new calendar year.

Set against that relative optimism has to be concerns in Europe over localised, regional lockdowns to help further contain the spread of the coronavirus. Petrochemicals demand took a huge hit earlier this year. Recovery has been patchy and end-use sector led. The pandemic has distorted trade flows and hit export demand.

Upstream players, particularly those integrated back to refineries, producing ethylene and polyolefins, continue to operate in near trough, if not trough conditions - certainly the case in global polyethylene.

The cyclical upside will come but will be influenced by trends that have been exacerbated or accelerated by the pandemic. More fundamental shifts in demand patterns will become apparent over time.

The demand side of the equation is clearly the more uncertain. Take ethylene in Europe. Ethylene demand in September has been described as “reasonable” but the exact picture is difficult to determine because of planned turnarounds at derivatives units and other derivatives issues.

A tranche of cracker maintenance was expected but some has been deferred to 2021. Ethylene appears to be lengthening in Europe and this could be an issue in the fourth quarter.

Polyethylene producers are looking to October for stronger demand after what was a disappointing September and are nervous about the current quarter following the slight fall in the October ethylene contract price – on weaker naphtha.

Petrochemical prices have risen markedly since earlier in the year, largely keeping pace with fluctuating crude oil.

Propylene in Europe is somewhat tighter than ethylene with demand into polymer seemingly healthier than that into other derivatives, a reflection, perhaps, of more general industrial uncertainty.


Turnarounds are a current feature of petrochemical markets in Europe with, for instance, benzene and styrene well supplied. Demand for benzene and styrene is said to be steady, especially into products with non-automotive applications.

The global economic downturn has deterred companies from making much other than essential capital expenditure decisions. Markets should tighten naturally, as healthier rates of demand growth return.

Petrochemical producers know that their fortunes will rise and fall with commodity capacity cycles, but the jury is out on when earlier very healthy margin levels might be achieved.

They also have to be mindful of how sector trends have been impacted by the coronavirus outbreak. The European Green Deal, which aims for climate neutrality by 2050, will have a significant impact on petrochemicals productions within the bloc. The EU is pushing ahead strongly with Green Deal initiatives designed to underpin economic recovery.

Continent wide, the drive towards great circularity in plastics shifts the feedstock picture for the major polymers, let alone the demand environment.

The sharp fall in the crude oil price earlier this year is symptomatic of significantly reduced oil demand into transportation fuels. European refineries are under great financial pressure with some players opting to shift operations towards biorefining, renewables and plastics recycling.

The EPCA calls 2020 a a transformational year for the petrochemical industry. Hit hard by the spread of Covid-19, uncertainty is rife as regards the shape and pace of the economic recovery in Europe.

The opening session of the virtual meeting on Monday afternoon will look into how sector companies might strike a balance between future capital investment in Europe and carbon control.

“This year’s 54th, digital edition will aim to take our audience beyond the new normal and envision petrochemical industry’s contribution to ‘Building a Smarter, Circular and More Inclusive Post-Pandemic World’.

Keynote speakers on Monday are: BASF CEO, Martin Brudermuller, Dow CEO, Jim Fitterling, Shell Chemicals Executive Vice-President, Thomas Casparie, and President, Refining & Chemicals at Total, Bernard Pinatel.

The meeting is free to attend.

ICIS is pleased to offer a complimentary seminar during EPCA week, covering the key developments, potential risks and opportunities in the global chemicals markets. Join our market experts on 9th October as they uncover the emerging trends in geopolitics, macroeconomics and global markets. Register for free here

Additional reporting by Nel Weddle, Linda Naylor and Helena Strathearn

By Nigel Davis