Europe’s political leaders were deadlocked last weekend over plans for the EU’s new Budget. A new north-south gap opened up, where the major contributors to the Budget (Germany, UK, Netherlands) demanded €30bn ($39bn) in cuts. This was, of course, badly received by those in the south (Italy, Spain, France) who would like more support.
This creates yet more uncertainty over the economy, to add to the existing issues regarding the future of the Eurozone. Equally worrying is the fact that amongst the leaders, as Lithuania’s president noted, “the divergence in opinions was so large there was nothing to argue about.”
Meanwhile, Europe’s olefin business – the building block for the entire region’s industry – continues to struggle. As the chart shows, based on APPE data, Q3 saw no recovery in operating rates, which remained at 80% in line with H1’s rate (red square).
These are clearly recession levels of operation. The only silver lining continues to be that refineries are also suffering, and their low operating rates mean there is no surplus naphtha production to push down olefin margins. Equally, the increased use of ethane feed in the US due to shale gas provides good support for co-product propylene and butadiene.
Overall therefore, European margins and profitability remain much stronger than could otherwise be expected. But as the old saying goes ‘if something is too good to be true, it usually is’. Europe’s leaders are running out of time to begin solving the challenges they face.