european polyolefins webinar
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European PE PP webinar
17 December 2014
Linda Naylor
Senior PE PP editor
Europe
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Agenda
• Overview of European PE PP
markets
• Feedstock challenges facing
Europe
• Shale gas
• Outlook
• Questions
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European PE PP prices in global context
European PE PP prices among the lowest in the world
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Situation evolving rapidly…
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2014 PE and PP relatively stable, follow
upstream contracts
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2014 PE and PP relatively stable, follow
upstream contracts
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Relative stability came as a relief to many
players
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2014
• Moderate price moves in PE PP
• Fine supply/demand balance
• Fewer imports
• More exports
• Weakening of the euro
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Game changer: Crude oil prices plummet
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Naphtha follows…
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Asian PE PP show dramatic falls…
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European prices relatively steady
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Nov/Dec margin improvement for European
producers • Feedstock collapse
• Lack of imports
• Strong exports
• Better-than-expected domestic demand
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Closer look at supply in Europe…
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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?
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Euro weak against the dollar xe.com
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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
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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
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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
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US ethane advantage vs naphtha
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US contract ethylene margins at record highs
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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
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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
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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
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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
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Outlook
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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
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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
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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
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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
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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
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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
