European polyolefins webinar
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European polyethylene (PE) and polypropylene (PP) production costs are among the highest in the world, yet PE and PP traded prices are currently among the lowest globally. High costs and low profitability have led to permanent closures, and more can be expected, but for the time being producers are selling like hot cakes and cracker margins are good, reaching an 18-month high in October. This ICIS webinar on European PE and PP markets looks at events in 2014 that have led to the current situation, and also the outlook for 2015.
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European polyolefins webinar
- 1. European PE PP webinar 17 December 2014 Linda Naylor Senior PE PP editor Europe
- 2. www.icis.com 22 Agenda • Overview of European PE PP markets • Feedstock challenges facing Europe • Shale gas • Outlook • Questions
- 3. www.icis.com 33 European PE PP prices in global context European PE PP prices among the lowest in the world
- 5. www.icis.com 55 2014 PE and PP relatively stable, follow upstream contracts
- 6. www.icis.com 66 2014 PE and PP relatively stable, follow upstream contracts
- 7. www.icis.com 77 Relative stability came as a relief to many players
- 8. www.icis.com 88 2014 • Moderate price moves in PE PP • Fine supply/demand balance • Fewer imports • More exports • Weakening of the euro
- 9. www.icis.com 99 Game changer: Crude oil prices plummet
- 11. www.icis.com 1111 Asian PE PP show dramatic falls…
- 12. www.icis.com 1212 European prices relatively steady
- 13. www.icis.com 1313 Nov/Dec margin improvement for European producers • Feedstock collapse • Lack of imports • Strong exports • Better-than-expected domestic demand
- 14. www.icis.com 1414 Closer look at supply in Europe…
- 15. www.icis.com 15 Supply end 2014 • 1 Jan 2014 duties from GCC Brazil and others rose from 3% to 6.5% • Initially little effect as extra end-2013 imports absorbed, but 2H 2014 C4 LLDPE, HDPE film became tight • Strong dollar plus extra duty leaves better netbacks to Asia for Middle Eastern sellers • Strong dollar also supports export activity from Europe Lack of imports- why?
- 16. www.icis.com 1616 Euro weak against the dollar xe.com
- 17. www.icis.com 17 PE PP closures in Europe Product Location Dow HDPE Tessenderlo, Belgium 190kt Closed End 2012 Versalis LLDPE Priolo, Italy 150kt Closed Sep 2013 LBI HDPE Wesseling, Germany 100kt Closed Q3 2013 Eni LDPE Gela, Italy 150kt Closed End 2013 Borealis HDPE Burghausen, Germany 175kt Closed End Q3 2014 Total HDPE Antwerp, Belgium 70kt To close End 2014 SABIC PP Geleen, Netherlands To close End 2014 Repsol HDPE Puertollano, Spain 90kt To close 2015 Older non-profitable assets close in the face of competition from lower-cost feedstock assets in the Middle East and North America
- 18. www.icis.com 1818 Middle East Imminent Capacity • Borouge 3: 960,000 t PP, 1.08m t HDPE/LLDPE, 350,000 t LDPE - imminent • Sadara: 350,000 t LDPE – 2015
- 19. www.icis.com 1919 Europe December 2014 snapshot • PE PP prices still low in global context? • Producers able to expand margins on tight availability • 2015 discussions tough for some grades • Euro zone forecasts weak • Expectations of lower contract prices to come • Inventories low on both buy and sell side • Asian prices fall • European plants close on high costs, unprofitability • New low-cost production on the way
- 21. www.icis.com 21 US ethane advantage vs naphtha
- 22. www.icis.com 22 US contract ethylene margins at record highs
- 23. www.icis.com 2323 US ethylene capacity could expand by 60% • 12 new crackers = 14.8m tonnes/year 10 on US Gulf Coast, 2 in Northeast US • Plus 8 expansions at existing facilities = 1.6m tonnes • TOTAL of 16.4m tonnes of new capacity, or 60% of existing capacity base, to 43.7m tonnes/year • Even if only 6 US Gulf Coast crackers are built (5 under construction, plus Sasol), plus expansions = 36% capacity increase • US PE capacity could rise by 8.1m tonnes, or 53%, to 23.4m tonnes/year (US) • Also 5-7 new PDH plants, BASF’s new MTP plant (methane-to-propylene) – largest single-plant investment ever
- 24. www.icis.com 2424 The competition: lower energy costs • Gas-based plants in the Middle East • More recently shale gas exploration in North America “Our main threat is the cost of energy in the US… which puts Europe and Asia at a distinct disadvantage, and this is of utmost significance… we need a coherent energy policy.” “The industry has a track record of crying out against change, but Europe cannot compete with energy costs elsewhere.” Karl Foerster, executive director at Plastics Europe
- 25. www.icis.com 2525 PolyTalk 2014, 4 November, Brussels “The US has unbeatable economics, they have cheap feedstocks and cheap energy, and we will see a wave of products coming across to Europe.” “My outlook for chemicals in Europe is rather gloomy…In ten years we won’t have a chemical industry.” 2 weeks later Ratcliffe announced $1bn investment in shale gas exploration and production in the UK Jim Ratcliffe, INEOS CEO
- 26. www.icis.com 26 European investment to import cheap US ethane Company Location Amount/year Target date INEOS Rafnes, Norway 400,000 tonnes 2015 INEOS Grangemouth, UK NA 2016 Borealis Stenungsund, Sweden 240,000 tonnes Q3 2016 SABIC Teesside, UK NA 2016 Versalis Dunkirk, France NA 2016
- 28. www.icis.com 28 Close-term outlook • January timing of deliveries crucial • Low stocks with converters • High cracker output during holiday season • Lower ethylene and propylene contracts expected • January PE PP pricing uncertain • Time is needed for imports to arrive
- 29. www.icis.com 2929 Outlook • Euro expected to remain weak against the dollar • Crude oil to stay low following recent OPEC decision not to cut output • European exports to remain viable, imports reduced… unless Asian prices fall low enough for Europe to become attractive to importers… Asian pricing key
- 30. www.icis.com 30 Europe outlook for 2015 Demand lacklustre – EU growth forecasts revised down Cefic cuts growth forecast for EU chemicals sector in 2015 to 1% from 1.5%, GDP forecasts also down
- 31. www.icis.com 3131 Moody’s rating agency view December • Europe to remain highest-cost region for ethylene, but margins better due to weaker oil prices • Europe remains high compared to Asian naphtha, North American natural gas, US ethane and propane
- 32. www.icis.com 32 Increased supply in Asia • Impact: Likely to exert downward pressure on PE and PP prices amid new supply • China’s Wuhan Petrochemical and Sichuan Petrochemical also started operations in 2013 • Producers in Sichuan, located in inland China, face logistical issues as facilities are further from the coast or ports • Cost of land transport likely to be higher and delivery times longer Wuhan: HDPE and LLDPE plants of 300,000 tonnes/year each; 400,000 tonne/year PP plant Sichuan: 450,000 tonne/year PP plant; 600,000 tonne/year PE plant Source: ICIS Pricing
- 33. www.icis.com 3333 Conclusions • January monomers to fall. • Could PE PP producer margins improve again? • Crude oil to remain low • Euro to remain weak • Imports/exports continue to be affected • More imports but when? • Asian markets key