Outlook for the global aromatics industry – insights from senior executives at Amsterdam Conference

Ben, PTA Aug15Aromatics markets often lead petrochemical markets, and provide good insight into economic trends.  This has certainly been true of PTA (terephthalic acid) and benzene over the past year.

PTA demand into polyester and PET is dominated by Asia: benzene’s wide variety of uses means it is a good proxy for industrial production in Europe.  Recent developments have been very significant, as the chart highlights.

It shows the spread (difference) between benzene and naphtha in Europe (green line); and between PTA and naphtha in Asia (red).  Naphtha is the oil-based feedstock for both products, and so the spread is the key measure for profitability:

  • PTA spreads collapsed in H2 2008 due to the financial crisis, but then rallied to $650/t with China’s stimulus
  • They then began a steady decline in H2 2013 as China introduced its New Normal policies
  • They fell to zero in H1 2014, but have since managed to stabilise around $200/t
  • Benzene spreads showed the same decline in H2 2008, but their rally was more volatile up to 2012
  • Spreads actually went negative for a period in early 2009, and returned to this level in late 2011, having been as high as $500/t
  • They then moved into the $300/t – $600/t range until a year ago, before declining and then rallying recently

Both products are thus highlighting underlying weakness in the global economy, with PTA also acting as an important leading indicator for the Asian economy.

How should companies and investors react to these developments?  Should they sit tight, and wait for the storm to pass?  Or should they develop new strategies to deal with a more difficult environment?

These are some of the key questions that will be debated at our 14th annual World Aromatics & Derivatives Conference in Amsterdam on 17 – 18 November.  Co-organised as always with ICIS, we will benefit from the insight of key executives from the global industry including:

  • Bayer MaterialScience’s Global Procurement head, Dirk Jan de With
  • Dow Chemicals’ Corporate Chief Economist, Rafael Cayuela
  • Investec’s Chemicals Analyst, Paul Satchell
  • PwC’s Director, Deals, Don van Neuren
  • Reliance Industries President, Strategy & Business Development, Harish Davey
  • Shell Chemicals’ General Manager Kate Johnson, and Global Strategy Manager for Styrene and Aromatics, Herbert Le Lorrain

A €150 ($175) Early Bird Discount is available until Friday night – please click here to register.

Shell CEO says Europe needs to leverage chemicals clusters

EU C2 OR Oct14

There are 2 ways to improve operating rates in an industry.  One is to increase volumes, the other is to reduce capacity.   The latest APPE data covering H1 2014 for European olefin capacity highlights how the European petrochemical industry has successfully used both mechanisms over the past year to improve its position:

  • Ethylene volume increased to 9.8MT, versus 9.3MT in 2013
  • Ethylene capacity reduced by 490KT, following Versalis’ decision to close at Porto Marghera
  • As a result, operating rates increased to 84% versus 78% last year

However, this success cannot hide the fact that an 84% operating rate is still too low to be sustained forever.

EU C2, C3 Oct14Equally, as the second chart shows, it seems that the industry’s efforts to increase the ratio of propylene production to ethylene output may have peaked at around 75%.

The increase from the 60% level seen 20 years ago has added valuable income to the bottom line, as propylene demand has grown.  It has also enabled the industry to benefit from the global propylene shortages created in recent years by the increased use of ethane feedstock in the US (which reduced the region’s propylene output).

But the data confirms there has been no real improvement in the ratio since 2008.

EUROPE NEEDS TO LOOK FORWARD, NOT BACK
These two developments would be challenging enough in themselves.  But as ICIS’ Nigel Davis noted in an Insight analysis this week, the external environment is set to become much more difficult:

“Ultra-low growth prospects in the EU give its producers no cause for comfort. The weakened chemicals demand growth prospects for China are the cause of further concern.”

Yet as Shell Chemicals CEO Graham van’t Hoff highlighted at the European Petrochemical Association’s meeting earlier this month in Vienna, the industry is enormously important to the European economy:

European chemicals are a $558bn industry providing over 1 million direct and nearly 5 million indirect jobs,… based on a vast, differentiated product portfolio”.

Encouragingly, van’t Hoff clearly shares the blog’s view (as highlighted in its recent article ‘Time to look forwards, not back’), that Europe now needs to become much more pro-active if it wants to survive and prosper in the future.  He argued that it particularly needed to focus on the potential for its clusters:

First, we should continue to leverage our clusters, which we have quite a few here in the region, such as the Antwerp-Rotterdam and Rhine-Ruhr clusters down to Ludwigshafen and Marl. We all know that competitive clusters are more robust, as they are well-integrated in terms of logistics, ownership and derivative units; and they have low cost to serve”

And he then went on to highlight other key areas for focus:

  • Integration.  van’t Hoff argued there were opportunities to build on the existing integration between refineries and chemicals – perhaps even utilising surplus gasoline streams to produce added value aromatics output
  • Feedstock flexibility.  There was clear potential to use more natural gas liquids, particularly ethane and propane, in coastal sites
  • Government partnerships.  These need to be formed on a national and regional basis to promote ‘joined-up policies’ and competitiveness versus other regions

TIME FOR ACTION
The conclusion is clear.  There is growing agreement that Europe needs to take radical action to secure its position for the future.  There can be no ‘business as usual’ strategy, given the range and scale of the challenges that it faces.

The need now is to establish national and European initiatives within the appropriate legal boundaries.  The blog has obtained expert legal advice to confirm that there are no regulatory “no-no’s” to stop the industry from developing the creative collective solutions that are required.

If we work together, we can create win-win solutions for the European economy, companies themselves and their major stakeholders.  This will enable us to build a sustainable future for our industry, and a better result for all of us individually.