Time to look forward, not back, for European petrochemicals
on September 29, 2014

2017 Sept14

The European petrochemicals industry is in crisis.  Operating rates dropped below 85% in H2 2008, and have never recovered.  Now there is a danger that it faces death by a thousand cuts.  This would be a tragedy for the European economy, as it would imply the loss of tens of thousands of well-paid jobs along the value chain.

The blog’s new article in this week’s ICIS Chemical Business argues that it doesn’t have to be this way.  It looks back from 2017, to highlight the likely disastrous outcome of continuing with a ‘business as usual’ strategy’ .  It argues the industry needs instead to take a new, forward-looking, direction to ensure a prosperous and sustainable future.

Dateline Brussels, 1 January 2017 
“The European petrochemical industry is still reeling from the closure of several major production units over the past 18 months.  And senior figures fear there may be many more to come.  That is the grim prospect ahead as we start 2017.

“Yet looking back, it is clear that these closures were by no means inevitable.  We simply failed to realise that demographic changes had completely changed demand patterns.  When we should have been focusing on the new opportunities these would create, we were instead allowing ourselves to be defeated by the short-term challenges they created. 

“Today, in 2017, we all know that spending has declined due to the ageing Western population.  And there aren’t enough younger people to replace their lost demand, given that global fertility rates have fallen 50% since 1950.  But if in 2014 we had looked forward, we would instead have focused on the fact that global life expectancy had increased 50% since 1950.  People no longer died at the age of 50 in developing countries, or at 65 in the West.  So a whole new market was opening up for the first time in history…..

 ”What could we have done to create a different and more prosperous future?  Four key issues jump out at us today:

  •  Feedstock structure.  Grangemouth highlighted the need for major change in the industry’s 1960s-based structure.  Companies needed to focus on securing alternative hydrocarbon-based feedstocks from gas and bio sources, instead of assuming that oil would remain the prime component
  • Market focus.  We also needed to develop a market-focused approach, and move away from traditional concepts of commodities and specialties.  This would have enabled us to successfully identify the new products and services required by the ageing BabyBoomers
  • Government partnerships.  In addition, we needed to learn the lesson from the Grangemouth and PVC experiences, and develop real partnerships with government at regional, national and EU-level
  • European dimension.  We also needed to establish national and European initiatives within the appropriate legal boundaries.  This would have avoided the damaging domino-effect amongst suppliers and customers created by ad hoc individual closures. We were wrong to assume that creative collective solutions would have been regulatory “no-no’s”

“Many now argue that we have proved unworthy successors to the executives of the 1970s.  They had faced oil price embargoes, major financial market crashes, and the continuing threat of nuclear oblivion from the Cold War.  But, unlike us, they had constantly focused on creating and exploiting opportunities for the long-term.  They were the ones who created the market which we have failed to maintain.”

Please click here to download a copy of the full article.  The blog also looks forward to discussing its analysis with readers attending the EPCA Conference in Vienna this weekend.

 

WEEKLY MARKET ROUND-UP
The blog’s weekly round-up of Benchmark price movements since January 2014 is below, with ICIS pricing comments:
Brent crude oil, down 12%
Benzene Europe, down 4%. “There were estimates of 15,000-20,000 tonnes of US benzene being shipped across the Atlantic for arrival in the second half of October”
Naphtha Europe, down 10%. “There is tepid demand in Europe and beyond, and a supply glut in heavier grades of naphtha is expected to extend into October”
PTA China, down 11%. ”Buyers were mostly adopting a wait-and-see stance, in anticipation for further price declines, only purchasing on a hand-to-mouth basis”
US$: yen, up 4%
S&P 500 stock market index, up 8%
HDPE US export, up 13%. “European prices are more reflective of the true value of PE as US values are very distorted because of high ethylene prices”

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