The document discusses the current state of the European ethylene market, highlighting issues such as margin compression, feedstock volatility, and a significant maintenance period impacting production. It details the effects of supply chain dynamics, including the reduction of inefficient units and the potential closure of European crackers due to the shale gas boom. Additionally, the document notes upcoming investments in new butadiene plants while presenting challenges from competitive products in other regions.

1. Ethylene and derivatives
Nandita Lal
Editor Ethylene, Polyethylene & MEG

2. Agenda
• European ethylene market – coping with margin destruction
• Polyethylene and PVC – Q4 destocking begins?
• Glycols- Will prices sustain as supplies ease

3. Spot and contract ethylene prices
Record high

4. What’s moved the market this year?
• Peaks and troughs become more extreme
• Feedstock volatility remains main catalyst
• Main drivers in both Q1, Q3 was stock replenishment
• End of Q3 saw maintenance period: 2.67 million mt/year
4

5. Margin compression
Negative spot
margins

6. Naphtha vs. ethylene vs. LDPE
Naphtha-ethylene
spread narrows to
2008 levels
6

7. So what has Europe done?
•Scaled back rates
•Closed inefficient units
6000
Quarterly Ethylene Production 2005-2012
5000
4000 2005
2006
2007
3000 2008
2009
2010
2000 2011
2012
1000
0
Jan - Mar Apr - Jun Jul - Sep Oct - Dec
Source: APPE

8. Comparative regional economics
Average Steam Cracker Profitability Q4 2011 $/mt
West Central North Middle China Asia World
Europe Europe Asia East
Net Feed Cost 498 551 756 216 255 340 590
Variable Cost 533 550 111 22 504 456 276
Fixed Cost 114 113 69 36 33 50 57
Ethylene Cost 1144 1214 936 274 791 846 922
Margin 222 99 285 943 338 243 276
ROI(%) 7.4 3 13.4 43.3 12.3 8.7 10.9
Source: CEFIC

9. Comparative regional plant utilization rates
Source: CEFIC

10. Derivative rationalization
• Ineos looking to sell its HDPE plants
• Versalis plans to replace its LLDPE C8 plant with elastomers
• Ineos is set to exit LLDPE C4

11. Shale gas developments to add to woes
• Shale boom may accelerate the closure of almost 10% of European
crackers capacity in the best case and 20% in the worst case in the next
five years.
• Europe to lose competitiveness in C2, likely to concentrate on C3 and C4.
 BASF plans to build a new 155,000 mt per year butadiene extraction plant
at its Antwerp, Belgium to start in 2014.
 MOL plans a new butadiene plant in Tiszaujvaros, Hungary by 2015.
 Versalis plans a new 70,000 metric tonne butadiene unit in Dunkirk, France
to be on line by 2015.
 LyondellBasell to debottleneck butadiene capacity in Wesseling,Germany
40% from 170,000 mt to 238,000 mt/yr by 2013.
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12. Average HDPE profitability
Source Booz and Company

13. What opportunities lie ahead?
• Integrated PE complexes are unlikely to be replaced
• The strong speciality chemical base of Europe
• A world-scale cracker to cost between $4 billion and $5 billion- not all
announcements likely to be followed
13

14. Polymer derivatives: Fundamentals for Q4
14

15. Converting industry also facing challenges
High and volatile
feedstocks
Competitive finished
products from
Middle East and Asia
15

16. Glycols: Resisting the sell-off
A spate of production issues lead to spike in MEG prices in Europe in
touching highs since 2007.
16

17. Middle East, US and Europe contribute
• Hurricane ISAAC limits USA supplies
• Europe imports 80,000-100,000 mt/year from the USA
• In August Ineos’ plant in Cologne, Germany; BASF in Ludwigshafen,
Germany and PKN Orlen in Plock, Poland were on turnaround
• In Middle East, SABIC, Equate and Petro Rabigh all had production
issues
17