Q1 was another miserable quarter for EU olefin producers. As the chart shows, based on APPE data, ethylene production at 4.7MT was at the lowest level in the past 10 years, with the exception of 2009. In fact, one has to go back to 1997 to find a lower figure:
• Operating rates were thus just 78%, a long way from the 90+% seen prior to 2008
• Co-product output was also weak, despite producers optimising severities
• Propylene production was 3.6MT, the lowest since 2002 apart from 2009
• Butadiene production was 0.5MT, also the lowest since 2002
Inevitably talk of restructuring is now gaining momentum. This is always hard to achieve, because of the industry’s high levels of integration. Most crackers have some connection to a refinery and, of course, those volumes are an order of magnitude higher than with petchems. Thus each plant’s future is to some extent out of its own hands.
It may be that the problems in the PVC industry, a major ethylene consumer, could prove the necessary catalyst for change. The 3 major players – INEOS, Solvay and Kem One – clearly recognise today’s difficulties are unlikely to prove temporary. Problems in Southern Europe have already caused the EU market to decline 30% versus 2007 levels. And volume could well fall further if Northern European markets now begin to slow.
At some point, lower oil prices will enable EU producers to regain competitiveness versus the shale gas based economics in the US. But the central banks’ efforts to create asset bubbles have caused oil to sustain today’s $100/bbl levels for a record period of time. Thus the transition back to more normal levels of $30/bbl will itself probably be most difficult to manage..