European petrochemical industry faces dual woes

19-Jun-07

Petrochemical industry in Europe is currently facing dual woes: Oil-producing Middle East countries, with access to cheap and abundant feedstock; and China, with access to a burgeoning domestic market - the largest in the world, continue large scale investments to secure a larger share of the world market. Adding to the burden and slowing down growth are regulations being introduced vis a vis petrochemical industry. European regulations, however well-intentioned, exert a heavy burden on the big petrochemicals groups-making it even harder for them to compete with the new capacities. The Middle East region, that currently accounts for over 10% of world ethylene capacity, is targeting lower-cost products at Asian markets, especially China, as per the French petrochemical industry association. By 2015, the Middle East region is expected to surpass Europe by 2015 in terms of ethylene capacity. The region is estimated to account for about 20% of world ethylene capacity, against 17% share of Europe. Demand is China continues to be robust, maintaining the country's position as the largest export market with petrochemical demand expected to keep rising by around 9%pa till 2012, as against growth of 1.8% in the US and Europe. The Chinese also continue to expand capacities by multiplying petrochemical investments. As the Chinese raise their domestic capacity and exports begin to dip, Middle East producers are likely to turn to Europe to dispose of future surplus capacity. Russia too is expected to start investing heavily in petrochemicals in the next few years. Pressures are to be particularly acute for European manufacturers, who are now coming under far more stringent regulatory constraints than their competitors in emerging markets and oil-producing countries. Regulations include European Union's Reach directive on chemicals, the Kyoto protocol, and moves by individual countries to step up their environmental campaigns.