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Presentation by John Baker of ICIS to the 2009 annual meetign of APPE and PlasticsEurope in Brussel son 28 May

Presentation by John Baker of ICIS to the 2009 annual meetign of APPE and PlasticsEurope in Brussel son 28 May

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  • Let me introduce myself – I am a global editor at ICIS – for many years editor of European Chemical News – now ICIS Chemical Business. I’m delighted to be hear to share some thought on the current situation and how it is impacting petrochemicals in Europe. It’s certainly a very interesting period in the sector’s history and one giving ICIS plenty to write and talk about. ICIS has recently held a high level Roundtable in Brussels on EU petrochemicals and carried out reader research and CEO interviews on companies’ reactions to the present crisis – some of the outcomes from these feed into my presentation this morning.

Transcript

  • 1.
    • Impact of the crisis on petrochemicals and derivatives
    • John Baker
    • Global editor
    • ICIS
    APPE/PlasticsEurope General Assembly 28 May 2009
  • 2.
    • Topics today
    • Economic and market conditions
    • Industry reaction
    • Slight recovery?
    • Restructuring/M&A
    • Capacity developments
    • European strategies
    APPE/PlasticsEurope General Assembly 28 May 2009
  • 3. APPE/PlasticsEurope General Assembly 28 May 2009
    • Economic and market conditions
    • Petrochemicals sector had enjoyed extended peak of cycle performance for several years – high oil prices/tight supply
    • Was expecting supply-led downturn into 2009-10 – added Middle East capacity
    • BUT – severe demand-led slump in December 2008 and Q1 2009
    • The result of financial crisis and ensuing economic slowdown
    • Driven by automotive, construction and electronic goods sectors…
    • Food, agchems, personal care, etc… much less impacted
  • 4. APPE/PlasticsEurope General Assembly 28 May 2009
    • Global demand declines
    • European car production expected to fall 25% in 2009 – EU projection
    • German construction output down 26% in January 2009, y-on-y; euro zone activity down by 9.1% - Eurostat
    • Japan’s export value shrinks by 50% in February 2009
    • Global trade to fall by 9% in 2009 – WTO forecast
    • Global GDP to contract by up to 1.0% in 2009 - IMF
    • European petrochemicals output drops 40% in December 2008, polymers by 33% - Cefic/Eurostat
  • 5. APPE/PlasticsEurope General Assembly 28 May 2009
  • 6. APPE/PlasticsEurope General Assembly 28 May 2009
  • 7. APPE/PlasticsEurope General Assembly 28 May 2009
  • 8. APPE/PlasticsEurope General Assembly 28 May 2009
  • 9. APPE/PlasticsEurope General Assembly 28 May 2009
    • Industry reaction
    • Reaction was rapid and largely effective
    • Plant idling and closures; reduced working, job cuts… “flexibilisation” of the workforce
    • Intense focus on cash flow and reducing working capital
    • Reduction of inventory at the producer
    • Reductions in capital expenditure – project delays… Repsol YPF at Sines, for example
    • Cut backs in discretionary spend – travel, etc…
  • 10. APPE/PlasticsEurope General Assembly 28 May 2009 Main metrics being used at present
  • 11. APPE/PlasticsEurope General Assembly 28 May 2009 Most common actions in the crisis - production
  • 12. APPE/PlasticsEurope General Assembly 28 May 2009 Most common actions in the crisis – workforce
  • 13. APPE/PlasticsEurope General Assembly 28 May 2009
    • Slight recovery – or just stabilisation?
    • Volumes and prices recovering a little in Europe
    • Excess inventory in supply chain being worked off
    • Signs of slight pick up in Latin America and Asia - but Japan suffering badly – trade down 25%, GDP down 4% in Q1
    • Europe expected to recover more slowly
    • Most producers expecting rest of 2009 to be flat and 2010 difficult
    • Even with demand recovery, 2011-12 will be difficult as supply-side effects finally kick in – new Middle East capacity comes onstream after delays
    • 2013-14 could be good times – for those that pull through
  • 14. APPE/PlasticsEurope General Assembly 28 May 2009 190
  • 15. APPE/PlasticsEurope General Assembly 28 May 2009
  • 16. APPE/PlasticsEurope General Assembly 28 May 2009
    • Restructuring/M&A
    • Most agree downturn will prompt restructuring in European petrochemical base
    • Already Total, LyondellBasell and SABIC have said they will close units in Europe (LDPE); Rhodia (nylon), Total (PS)… PVC in Italy, Ineos (chlorinated solvents…)
    • More plant closures to come – old and underperforming units
    • Difficult decisions due to integrated nature of the sector
    • Only two ethylene units closed since Baglan Bay in 1994 – Gela (2007) and Carling (2009)
    • Now is an ideal time to act
  • 17. APPE/PlasticsEurope General Assembly 28 May 2009
    • Restructuring/M&A
    • M&A activity depressed - but companies will be looking to sell non-core assets – to focus on core activities and raise cash
    • Producers focusing on cash conservation
    • Private equity out of the market as debt financing has disappeared
    • Sovereign wealth funds one possible source of funds – IPIC and Nova Chemicals
    • But some deals possible – Dow Chemical/Rohm and Haas – leading petchem asset divestments; Mitsubishi Rayon/Lucite; Rhodia/McIntyre
    • Debt-laden companies suffering – LyondellBasell in Chapter 11, Ineos renegotiating covenants….
    • Cash-rich and oil-backed may emerge as stronger players
  • 18. APPE/PlasticsEurope General Assembly 28 May 2009
    • Capacity developments
    • This year and next sees large amounts of petrochemicals capacity coming onstream in China and the Middle East
  • 19. APPE/PlasticsEurope General Assembly 28 May 2009
    • Capacity developments
    • More capacity due 2010-12 – but timing of many projects is uncertain
    • New crackers and major expansions in planning 2010-2015:
    • China (20)
    • India (8 )
    • Saudi Arabia (9)
    • Oman, Qatar and Abu Dhabi (7)
    • Iran (5)
    • Singapore (2)
    • Taiwan (2)
    • Thailand (2)
  • 20. APPE/PlasticsEurope General Assembly 28 May 2009
    • European strategy
    • Closure of laggard plants and restructuring of asset base
    • Focus on R&D and innovation for lower-volume, higher added-value products
    • Optimise supply chain operations and customer closeness
    • Establish or maintain production base in Middle East – for standard and high volume grades
  • 21.
    • Impact of the crisis on petrochemicals and derivatives
    • John Baker
    • Global editor
    • ICIS
    APPE/PlasticsEurope General Assembly 28 May 2009