Dow Site - Texas Operations, Freeport, Texas
Dow Site - Texas Operations, Freeport, Texas
WAITING FOR THE UP-TURN The deepening eurozone debt crisis and the slowdown in Chinese economic growth are continuing to dampen global demand for chemicals. Anna Jagger reports.
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uropean chemicals trade association Cefic has warned that the debt crisis is hitting the sector harder than initially forecast, and chemicals demand in the region is now expected to contract this year. “Domestic demand for chemicals will decline slightly compared with 2011 as austerity measures in EU member states dampen business orders and inventory build-up remains flat, due to continued weak EU business sentiment,” said Cefic director general Hubert Mandery. Output of chemicals in the EU is expected to remain stagnant this year. This compares with Cefic’s previous forecast in December of 1.5 per cent growth. The association reported that for the first quarter of 2012, output fell 2 per cent compared with the same period in 2011, although it improved compared with the fourth quarter of 2011. Cefic is optimistic that the EU economy will stabilise during the second half of the year, aided by overseas demand and a weaker euro boosting eurozone competitiveness. “A weaker euro should also help increase EU chemicals exports,” Mandery said. For 2013, chemicals output is expected to rise by 2 per cent, despite austerity measures and continued high unemployment levels. The recent fall in oil prices is expected to foster long-term business activity. However, lower prices are resulting in destocking 8 Industry Europe
activities by customers across the global chemicals chain as they delay orders in the hope of capturing lower prices in the future.
Shale gas boosts US For the European chemicals sector, a further concern is the improved competitive position of producers in North America as a result of increased production of US shale gas. The shale gas boom, made possible by new drilling technology, has transformed the energy profile of the US over the last decade. Chemicals producers crack the ethane content of the gas to produce ethylene – a key building block for the chemicals sector. Hence the availability of cheap and abundant US gas reduces both the energy and feedstock costs for North American chemicals producers. “US [chemicals] exports will grow faster as capacity expands to meet local demand growth and exports resume,” said global investment company Bernstein Research. “Meanwhile, the European chemicals industry is at risk of slower growth.” Low-cost US gas is positive for the global chemicals industry because, as well as lowering energy and feedstock costs, it spurs economic development, Bernstein observed in a report on the impact of shale gas on the European chemicals sector. The cost advantage is large for a few products, including
nitrogen fertilisers and ethylene derivatives such as polyethylene (PE), polyvinyl chloride (PVC) and monoethylene glycol (MEG). Over the next few years, the US chemicals industry will expand production of these products, while producers in other countries such as China will supply the naphtha cracking co-products that the rest of the chemicals industry needs, Bernstein said. Cracking of naphtha, the main petrochemicals feedstock in Europe and Asia, produces ethylene plus a variety of co-products. Low-cost US gas supplies are prompting chemicals producers to build new ethylene capacity in the region. Much of this new ethylene production will be converted into PE, providing a major boost to North America’s plastics industry. Only five years ago, experts were predicting that the region could become a net importer of PE, as investments were directed mainly at the Middle East based on low cost ethane or the fast-growing Asian markets. Now the US shale gas boom is offering a huge competitive advantage and could lead to an increase in the country’s ethylene capacity of 33 per cent by 2017, according to ICIS data. The calculation is based on announced new ethylene projects and expansions. Dow Chemical, Formosa Plastics, Chevron Phillips Chemical, Shell and ExxonMobil
