Profitable market for European chemicals

New analysis from IHS has said that the crude oil price swings of recent months, combined with a devalued euro, have created a volatile, but profitable marketplace for European petrochemical producers, with European steam crackers achieving record margins in the fourth quarter of last year. Petrochemical markets are heavily impacted by changes in the crude oil price, since crude oil and naphtha are essential steam cracker feedstocks for the production of gasoline and numerous chemicals. Changes in the crude oil price influence not only the overall price level for petrochemicals like olefins and aromatics, but are also a primary driver behind changes in the supply and demand picture.

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Michael Smith, VP of European Chemicals, IHS Chemical said, “after crude oil prices started dropping in the summer of 2014 descending to a low of approximately US$46/bbl in January 2015, entire value chains for chemicals and polymers went into a destocking mode, and buyers began postponing their buying decisions for as long as possible, waiting for price to bottom out. Now, crude oil prices are around US$62/bbl, consumption is improving, and buyers throughout the value chain are focused on restocking their inventories in a tight market. The challenge now for buyers is simply sourcing material, not negotiating on price, which is a welcomed advantage for European petrochemical producers. These producers are asking how long will these good times last?”

Matthew Thoelke, Director of Olefins commented, “polymers and other petrochemical buyers are currently facing a once in a generation supply squeeze. For buyers, the current market scenario is a perfect storm in reverse. At HIS, we see four main factors contributing to this unusual situation, buyers have an incentive to restock, European consumption is improving, imports are at reduced levels thanks to a devalued euro, and lastly, as a result of these factors, buyers of polymers face a virtual supply nightmare.”

Howard Archer, Chief European and UK Economist, IHS Economics and Country Risk said, “the weakened euro has certainly been contributing to the Eurozone’s recent improved performance along with very low oil prices and stimulus from the European Central Bank, which is benefitting industries such as petrochemicals. In particular, the weakened euro has provided a significant boost to the competitiveness of Eurozone manufacturers, particularly in export markets. With the euro climbing off its mid March lows and Eurozone growth expected to continue to firm, IHS thinks it is unlikely that the euro will dip below parity against the dollar, so the advantage here for European producers, in terms of the euro disparity is likely to erode. However, the euros’ performance could be impacted by whether or not Greece stays in the Eurozone.

“How long this tight supply petrochemical market will last in Europe is the big question that is highly dependent upon what happens with oil prices. Currently, the Brent crude oil price very stubbornly hovers above the US$60/bbl mark, but this can change rapidly. Lower crude prices could send petchem prices tumbling. Fundamentals still point to an oversupplied oil market, and our colleagues at IHS Energy expect the Brent price to fall back to US$50/bbl in the coming months, when close to 2 million bpd of crude oil will be heading into storage. If this happens, demand is likely to ease, though producers will have the opportunity to see a repeat of Q4 2014, as prices would trail costs downward and margins will once again strengthen.”

Edited from press release by Claira Lloyd

Read the article online at: https://www.hydrocarbonengineering.com/petrochemicals/28042015/european-chemicals-markets/