Market and product

While the worst of the recession is now over in France and petrochemicals output is on the rise following a 25% contraction in 2009, BMI’s latest France Petrochemicals Report states that the industry’s lack of competitiveness both in the EU and beyond will lead to significant cut-backs in capacity. Total Petrochemicals was to restart its 350,000tpa ethylene plant at Carling in February 2010 after an explosion in July 2009 forced its closure. This will be welcome news for the downstream units that rely on it for feedstock and have had their operations curtailed. However, Carling has already witnessed a reduction in capacity from 570,000tpa and Total was expected to announce the closure of its 137,000bpd refinery at Dunkerque, which also supplies 90,000tpa polymer-grade propylene and naphtha to downstream units but was shut in September 2009. Many French plants are too small to compete against new world-scale facilities in the Middle East and Asia, which have an advantage in access to cheaper ethane feedstock and lower operating costs. The French petrochemicals market is also set to diminish as a proportion of the global market as China and other Asian markets increase in importance.

These trends, rather than the short-term effects of recession, are likely to lead to further cutbacks in French capacity. In 2009 France had olefins production capacities of 3.14mn tpa ethylene, 2.13mn tpa propylene and 445,000tpa butadiene. Polymer capacities included 1.44mn tpa PP, 1.22mn tpa LDPE, 705,000tpa HDPE, 560,000tpa LLDPE, 1.39mn tpa PVC, 330,000tpa PS and 70,000tpa PET. In the fertiliser segment, France has capacities of 1.58mn tpa ammonia and 480,000tpa urea. France also had styrene butadiene rubber capacity of 160,000tpa.

The secular decline in production will also be exacerbated by the long-term fall in demand from petrochemicals-consuming industries, notably the automotive sector which is not expected to return to pre-recession rates of production in the next five years. In 2010, key petrochemicals consuming industries – automotive, construction, packaging, etc – will exhibit a slow recovery, although growth will be principally due to base effects. With BMI’s economic analysis expecting a decline of 2.3% year-on-year (y-o-y) in 2009, followed by a small recovery of 1.5% y-o-y growth in 2010, we do not see any substantial increase in demand from domestic petrochemicals users until H210.

For 2010 we have revised upwards our petrochemicals industry growth forecast from 2.0% to 4.0% in response to an upward revision in our real GDP growth forecast. This is on the basis that demand will start to return to key consuming industries, assisted by stimulus programmes across Europe. However, we are sceptical that the financial support to the automotive industry will have a major impact on chemicals and petrochemicals producers, which are facing severe declines in sales volumes and revenues across a wide range of sectors. In order to sustain production, French petrochemicals producers will have to ramp up research and development, improve their products’ value-added, and exploit niche and speciality markets. At the same time, restructuring, streamlining and integrating operations will be crucial to boosting profitability. New efforts are expected to involve partnerships with clients, new innovation sources and higher integration with refining.