Survival of aromatics value chain possible if customers thrive

After two years of very tough business conditions for the C6 aromatics value chain, Sven Royall, Shell Chemicals Vice President for Intermediates, said that there is now "a ground swell of opinion throughout the industry that better times are coming." While recognizing that there are still numerous and complex challenges to be met relating to competition, supply, cost or sustainability issues, Royall said: "There are also significant opportunities for future growth if the supply chain remains flexible, competitive and creative." Shell is a major global aromatics producer and significant supplier of benzene, styrene and phenol-acetone, the key building blocks for the C6 chain. Royall noted that Shell's "major customers and their customers are expressing confidence that the materials and products made from or with aromatics will continue to be in demand, with new applications driving growth in a number of markets." Aromatics have suffered major demand disruptions in the wake of the 2008 global financial and economic meltdown, said Royall. "Global styrene producers, for example, are still grappling with average industry operating rates around 82%, the lowest since 1990. And while phenol operating rates have perked up this year, last year they averaged around 75%." Since late 2008, two key C6 end-use markets — automotive manufacturing and construction — have been in a deep trough. But it is in these two key end-use markets, which are now slowly recovering, where much of the future growth in C6 value chain demand is likely to emerge. "In large part, this will be because C6-derived products are well suited to meet the needs of a low-carbon age. Their lightweight and insulating properties can help reduce energy consumption and lower CO2 emissions, while their 'processability' is enabling designers to engineer a variety of stronger, more flexible parts and products that meet the needs of a wide range of manufacturing industries," said the Shell vice president. Industry indicators through 2010 suggest strengthening demand, the Shell executive continued. For the period 2011-2014, Shell and CMAI estimate potential annual benzene demand growth of 3.9%, which is underpinned by derivates demand growth, including 3.6% for styrene, 5.1% for cumene/phenol (3.5%) and aniline (4%). There are reasons to be optimistic about the ongoing demand prospects for the C6 value chain, but "players along the value chain will need to work together to develop the products that take advantage of the performance and design properties of C6-based products, and particularly those addressing solutions for a low-carbon future," Royall added. Despite an improving business outlook, challenges remain. These include the lack of supply predictability and price volatility in benzene; costs of butadiene; regional ethylene issues; regional styrene and phenol supply issues; and health, safety and environment (HSE) concerns that will require close monitoring. Royall suggested: "For the industry, the best response to HSE concerns is to continue our close engagement with ongoing and long-term research into the potential hazards and risks relating to our products. It is essential that we continue to press the case for a science-based response to regulation, and to promote the beneficial societal impacts of our products." As the western world emerges from the ravages of recession, Shell expects to see a sustained upturn in overall demand and an increase in demand for products such as insulating materials and low-weight, high-strength products for the automotive sector. "The aromatics value chain will only survive if our customers thrive. So it is imperative that producers' strategies are aligned with the growth strategies of their customers. This could take the form of growing in new markets, assisting in new formulations of products, being proactive in the management of inventories, etc. In short, the value chain needs to be customer-focused," Royall continued. "To remain competitive, new and existing capacity will fare best if they have some inherent advantages, such as access to low-cost feedstock, safe and reliable assets, economies of scale, site integration with upstream and downstream plants, and technology and customer linkages. As far as Shell is concerned, being at the start of the C6 value is a logical location for an integrated energy group. Having long since withdrawn from the downstream sector of the C6 value chain, we have no intention of returning. For our joint venture partners and customers who do have downstream businesses, our message is clear: Shell sees its future as a leading global merchant supplier of benzene, styrene and phenol."