Commentary: Tough choices

26 September 2014 09:02 Source:ICIS Chemical Business

The European chemical sector faces difficult structural challenges and economic headwinds that will require vision and decisive leadership from company managements and politicians


Europe must find the right path for growth

Copyright: Rex Features

As delegates gather for the 2014 European Petrochemical Association annual meeting in Vienna, the industry is under unprecedented pressure from external forces which threaten to undermine its long-term prosperity and even survival.

Most immediate is the slowing European economy where confidence in a recovery once again seems to be ebbing away thanks to factors such as the Ukraine crisis as well as slowing growth globally, led by Asia and China.

The latest set of eurozone flash purchasing managers indexes from Markit show manufacturing and services activity slowing. Second-quarter economic growth slumped to zero from 0.2% in the first quarter. And Germany, that powerhouse of the European economy suffered a contraction of 0.2% in GDP over the same period.

Chemical prices are falling in many markets with concerns about demand – as well as oversupply – denting buying activity globally. The ramp up in chemicals capacities in many markets in Asia during 2014, especially China, is making these countries seek to export more and import less. Surplus product is heading to higher-cost regions such as Europe which are already oversupplied.

The US shale gas phenomena is already having a big impact on Europe as the graph on page three of our special EPCA report shows. US margins on ethylene and derivatives such as high density polyethylene (HDPE) have soared compared with Europe thanks to the price differential of US to European ethane.

Things will only get worse when the $70bn plus of new US production capacity comes onstream from 2017. That phase of investments has moved into a new phase with the granting of air permits and the progression of projects towards construction phase.

Material from those new plants will be seeking a home beyond the US and as Asia becomes more self-sufficient, Europe is an obvious choice.


Against this backdrop, politicians need to make some tough decisions to help the industry survive and prosper.

Europe has large reserves of its own shale which are ripe for development but being held back by opposition from the public and politicians.

As INEOS, Borealis and SABIC have shown, innovative players in the chemical industry are doing its best to grab some of the US shale advantage through projects to upgrade crackers for greater use of ethane as well as the construction of import terminals.

Whilst this may be a good solution for them, exploiting our domestic reserves makes much more sense for the region as a whole as it would make feedstock supplies much more widely available at competitive prices.

EPCA chairman Tom Crotty acknowledges there is a lot of work still to do allay public concerns over shale gas. But, he insists, it is probably one of the safest and most environmentally-sound sources of non-­renewable energy.

Politicians also need to address the high cost of energy in Europe, which is a real killer for energy-intensive sectors such as commodity chemicals.

As Crotty puts it, Europe face a stark choice: “We can envision a vicious cycle of decline in a vain attempt to reduce carbon emissions, putting the European chemical industry out of business.” Growth and jobs would disappear and carbon emissions would rise as products are imported from other regions.

“The opposite to that is a virtuous circle of improvement. They can drive the chemicals industry out of Europe; or they can give us a break and allow us to grow, create jobs and invest in low carbon technology.”


There is no doubt that Europe’s population – as well as many other mature and even emerging economies – is aging. Some commentators, such as International eChem chairman Paul Hodges (see page 26), insist lower consumption by the elderly will have a powerful impact on demand for chemicals. He suggests the industry in Europe should wake up to the need for more rapid restructuring and portfolio adjustment now to avoid a calamity in years to come.

The reported permanent closure in September of the Versalis cracker at Porto Marghera, Italy, is the latest casualty in an industry which is now under unprecedented pressure to restructure.

via Commentary: Tough choices.