Europe PE must adapt as US wave approaches - INEOS

26 April 2018 15:11 Source:ICIS Chemical Business

European polyethylene (PE) producers need to “change focus” towards more differentiated polymers in order to grow amid a wave of new US capacity, an executive at chemical major INEOS said on 25 April.

Rob Ingram, business director at INEOS Olefins & Polymers, was speaking on the current supply and demand dynamics and what the new PE capacity in the US would mean for the European market. He was speaking at the ICIS World Polyolefins conference, which ran in Vienna on 25-26 April.

“PE is the vehicle to capture the value,” said Ingram, referring to the cost advantage US producers have gained with access to ethane as extraction of shale gas jumped. In order to absorb the new capacity, the US market would have to grow by 6%/year, but that growth rate is unlikely for such a mature market, making an increase in exports inevitable.

“One would expect a reasonable portion [of polymers production] to be focussed on exports … Most will flow to China, but some structural flow to other regions is expected,” said Ingram.

US EXPORTS COMMODITIES

The majority of exports from the US are expected to be more commodity grades, and that will require European producers to change their focus into more specialty grades in order to grow.

However, Ingram said that more complex grades take longer to produce, which can reduce production capacity by 15-25%.

Therefore, if there is a change in the region towards more differentiated polymers, then there will be a reduction in operating rates.

According to the executive, the new capacities in the US present a threat to European producing facilities, and highlighted how 3m tonnes of production capacities for polymers in the region has already been lost in the past decade.

LOST CAPACITY

That loss of capacity in Europe ran parallel to an increase in the Middle East, said Ingram, with polymers capacities increasing by 13m in the 2009-2013 period alone. However, Europe is expected to require additional polymers quantities of between 300,000-500,000 tonnes/year to match a growth in demand of 2-3%/year – there will be demand for imports, said Ingram.

There are also opportunities in both upstream and downstream for European sellers, especially as the EU pushes ahead with new recycling targets and starts contemplating the still-distant idea of ‘circular economy’ in which most products would be reused.

Polymer producers may move closer to the function of converters, becoming more involved in converting as well as mechanical recycling in order to grow, said the INEOS executive.

He added that Europe could also try to replicate the advantage that the US has by strengthening feedstock positions, something that would be achieved through mechanical recycling.

“We should try to become world leaders in developing solutions to the circular economy,” said Ingram, examining options like the zero pellet loss or ‘Operation Clean Sweep’.

While a major change in the global PE market is just about to happen, increasing competition for sellers, there are still opportunities for European producers to continue playing a role.

KEY FACTS:

  • Wave of commodity PE coming from US

  • Europe players must specialise in higher grades

  • This switch can reduce production capacity by 15-25%

  • Big opportunities from circular economy

  • Producers can move closer to the convertor

Meanwhile, political volatility in Turkey has led a polymer supplier to focus on other markets including Europe, a source said on 25 April.

Emrah Gurel/AP/REX/Shutterstock

Political unrest is driving exporters away

The June snap election, called by President Erdogan in the week ending 20 April, appears to have been the final straw for this company.

It said that the uncertainty that has been a consistent issue in Turkey over the past few years and it has dissuaded sellers from providing product into the county. The source was speaking on the sidelines of the ICIS World Polyolefins conference, which runs in Vienna on 25-26 April.

Turkey’s economy has been performing poorly over the past few years, which has not been helped by military action, various international spats and political uncertainty fuelled by Erdogan’s increasingly authoritarian grip on power.

Many players have previously said that they hoped that business would improve following the election, in that it will bring stability in the coming years.

Turkey’s reliance on imports for most polymer grades means that it would suffer from a lack of confidence from foreign suppliers. It remains to be seen if this supplier is an isolated example or beginning of a trend.

Ben Lake in Vienna contributed to this article

By Katherine Sale