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Grangemouth closure could force downstream converters to shut

23 October 2013 15:58  [Source: ICIS news]

LONDON (ICIS)--The closure of INEOS’ petrochemicals complex in Grangemouth, Scotland, could down the line force downstream converters in the UK to shut because of higher costs caused by the need to import, chairman of consultants International eChem, Paul Hodges, said on Wednesday.

“It seems to me there is a real danger that the UK sleepwalks into a position where its manufacturing revival is put at risk as a result of this closure, which adds further problems on top of the UK’s already high energy costs,” Hodges said.

Switzerland-based INEOS earlier on Wednesday confirmed the Grangemouth petrochemicals complex it operates will remain closed after being shut down early last week in preparation for anticipated industrial action, adding that liquidators will be appointed within a week.

The Grangemouth plant is a critical part of the UK ethylene pipeline which links the UK’s petrochemicals crackers in Wilton and Mossmorran and Shell’s downstream operations in Stanlow, Hodges said.

The Grangemouth cracker has the capacity to produce 1.02m tonnes/year of ethylene, SABIC’s cracker in Wilton has a production capacity of 865,000 tonnes/year and Shell/ExxonMobil’s cracker in Mossmorran has a 830,000 tonne/year production capacity. A big slice of output will be lost with Grangemouth staying closed.

Hodges also points out that a pipeline extension from Wilton to Grangemouth was built in 1979 to help provide the operational flexibility needed to run the Wilton site, while Shell also benefits from the flexibility provided by the pipeline to move its ethylene from Mossmorran to Stanlow.

Hodges, who also writes a blog for ICIS, said the closure causes two real dangers.

“The large downstream UK plastic converter industry which uses polyethylene [PE] and polypropylene [PP] has to look overseas for more of its raw materials. This will adversely impact the UK trade balance in the short-term.”

“In the medium-term, it means that companies are more likely to shut because their costs are higher due to the need to import. The UK is already suffering from high-priced energy, and this could well be the straw that breaks a few camels’ backs,” he added.

Hodges also said in turn, a need to increase imports will increase costs for the converter’s customers in packaging, consumer products, automotive etc., while also creating supply chain issues around delivery schedules. 

“Thus there is a clear risk that over time this will encourage downstream companies to rationalise production in the UK and import instead to meet UK demand,” he added.

This would be bad, but not necessarily critical, Hodges said, if the plastics/chemical industry was otherwise doing well. However, any upturn that was seen in July/August turns out to have been due to inventory building, as people feared the oil price would rocket if Syrian conflict developed. 

“As wiser counsels prevailed on Syria, people now have find themselves with plenty of raw materials, and any thought of recovery has already been postponed (once again) to the New Year. And if one believes, as I do, that chemicals are a more reliable leading indicator than financial markets, this is not a good omen for the outlook for the real economy,” he said. 

By: Franco Capaldo
+44 (0)20 8652 3214

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