Pressure Mounts on European Petchems

As the wave of new capacity comes on line, pressure is mounting on petrochemicals producers in Europe.

Just taking ethylene capacity as an indicator, almost 7 million tonnes new capacity started up in 2009, another 7 million tonnes is due to come on-stream in 2010 and a further 5.5 million tonnes in 2011. Almost all of this new capacity is in the Middle East and Asia.

With the construction sector is still relatively weak and the automotive sector potentially at a turning point, given the withdrawal of economic stimulus initiatives, producers have increasingly relied on growth in Asian markets to fill the demand gap.

However there is little doubt that steadily increasing volumes of ethylene and derivatives will be arriving in Europe, increasing the pressure on producers. All have been through major cost cutting programmes over the last couple of years and have little room for further manoeuvre in this regard.

As a consequence, further capacity reduction is almost inevitable. However against a difficult political backdrop, as demostrated by recent strikes in France related to refinery closures, it is very difficult to predict just where this will happen.