Multiple hits to the end of the European Petrochemical bull market

The European petrochemical industry was still in a bull market, and continued to grow healthily in a rising cycle. Few people predicted that this optimism would soon end. Today, the European petrochemical industry is clouded by uncertainty. In sharp contrast to last year's situation, the stagnation of the global economy, the ongoing trade conflict between China and the United States, the imminent absence of a British agreement to withdraw from Europe, and the shrinking output of the European chemical industry, especially Germany, all add up to make the prospects for European petrochemical companies unpredictable.

The German Chemical Industry Association (VCI) said the second quarter performance of the German chemical industry was "disappointing". Both production and capacity utilization declined slightly, and sales stagnated even as prices continued to rise. Domestic demand for chemicals in Germany is weak, while demand in Europe, an important export market, is declining. Compared with the same period last year, Germany's chemical industry output plunged 8.8% in the second quarter and 0.7% in the first quarter of 2009. According to the VCI report, the utilization rate of chemical production capacity declined from 84.1% in the first quarter to 83.4% in the second quarter, while prices rose by 1.8% and 0.6% year-on-year.

In the second half of 2019, the European market sentiment was down due to the planned shutdown of a series of cracking units from September to October, and the unplanned shutdown of a number of units aggravated the decline in production.

IHSMarkit's Euro/Middle East Monthly Report on Light Olefins points out that the planned overhaul is expected to bring Europe's total ethylene production loss in September to a record monthly low in November 2008, when demand for ethylene fell sharply due to the financial crisis.

The shutdown period of cracking units in Germany, the Netherlands and the United Kingdom was as long as 8 weeks, which led to the reduction of ethylene production capacity. Unplanned shutdown of ethylene cracking units in Belgium and Portugal also affected production. The 730,000-ton/year cracking unit at Grangemouth, UK, was scheduled to shut down in August. Two weeks later, the 240,000-ton/year cracking unit at Basf in Ludwig Harbour, Germany, began to be repaired. BP's 540,000-ton/year No. 3 cracking unit in Gelsenkirchen, Germany, also began major overhaul before the end of August, and the 675,000-ton/year No. 4 cracking unit in Geleen, the Netherlands, in Sabiq, began the overhaul cycle. In early September, Dow Chemical's 535,000-ton/year cracking unit in Terneuzen, Netherlands, began to shut down, and Repsol will shut down its 670,000-ton/year cracking unit in Taragona, Spain, in October. Shell cut its production of 940,000 tons/year cracking unit in Moldic, the Netherlands, in August and September because of failures. ExxonMobil shut down its 830,000 tons/year cracking unit in Mossmoran, UK, in August and plans to restart it in November.

According to the report, the ethylene production capacity in Western Europe is expected to lose at least 20% in September due to the dramatic reduction in ethylene supply caused by the above-mentioned suspension. The company said that the planned large-scale shutdown would last until October, putting the European petrochemical industry under tremendous operational pressure and further increasing the risk of technical problems in other assets.

The report also said that the usual September rebound in demand was not as strong as expected, as continued economic concerns depressed market sentiment and continued weakness in Asian markets forced "buyers to take a more cautious attitude". According to IHSMarkit's European/Middle East Low Carbon Olefin Report, the prudent attitude of propylene buyers indicates that the weakening of activities in the automotive and construction industries is causing potential pressure on the propylene derivatives industry. Although raw material prices in Asia and Europe have returned to comparable levels, carbonyl alcohol products are still struggling, propylene oxide is still in a downturn, and phenol is facing import pressures, further increasing pressure on local producers in Europe, the report said.

In the first half of 2019, the production of light vehicles in Europe dropped by 6%, which significantly hurt the demand for benzene value chain products, such as ABS resin, styrene-butadiene rubber, nylon and polycarbonate. A major problem affecting the demand for polycarbonate in Europe is the increase in China's production capacity in the past few years. In the absence of alternative demand channels, European exports to China declined, which in turn affected bisphenol A, phenol and acetone, and ultimately affected the benzene value chain. In the p-xylene chain, the capacity of polyethylene terephthalate (PET) resin is growing in China, other regions of Asia and the United States. This year, a large number of PET resins are imported from Asia to Europe, and more new production capacity will continue to grow in Asia next year, which requires European producers of terephthalic acid and terephthalic acid (PTA) to look beyond Europe.

According to the latest statistics of the European Chemical Association (Cefic), the level of petrochemical imports has increased significantly since this year. Compared with the same period last year, chemical imports in the first quarter of the EU increased by nearly 6%, reaching 30.1 billion euros. Cefic said the significant change was the rapid growth of imports from the United States, which increased by nearly 12% year-on-year to 6.4 billion euros, mainly petrochemicals.