Abstract
The US petrochemical industry is suffering the effects of a contraction in
house building and car
production, with output set to contract in 2009 and
into 2010, according to BMI' s latest US
Petrochemicals Report.
The US
petrochemicals industry will continue to suffer as a result of a glut in world
supply, a situation
that is being exacerbated by new capacity and falling
demand. As a result, many companies are
struggling, especially those that
entered the downturn with a high degree of financial leverage. The PE
market is particularly badly hit, with over-capacity projected to reach 18% of
world demand in 2009 and
15% in 2010, more than double the level of excess
capacity seen in previous cyclical downturns in the
petrochemical
industry. This is includes the 9mn tonnes per annum (tpa) of capacity due to
be taken out
over the next five years to tackle the problems caused by
surplus capacity.
Performance so far in 2009 has been poor due to the
decline in demand from important end-users, namely
the construction and
automotive industries. Unsurprisingly, the drop in demand and squeeze on
margins
has had a negative effect on petrochemicals revenues and
profitability. The one positive aspect of
recession is the decline in
energy prices, which will bring down feedstock costs for petrochemicals
producers, although this trend will not make up for the pace of declining
demand.
Plummeting margins are leading to temporary and permanent plant
closures. LyondellBasell will
permanently shut down of its 218,000tpa HDPE
plant in Chocolate Bayou, Texas by the end of July 2009.
However, this
reduction in capacity is not expected to have an impact on the market. The
plant produces
HDPE of blow moulding grade, for which domestic demand has
been weak. The cracker that supplied the
plant and relied on heavy
feedstock had also been closed down. Meanwhile, in April, Texas
Petrochemicals it planned to reduce its overall C4 processing and butadiene
production capacity by 30%
through the idling of assets at its Houston and
Port Neches, Texas plants. The company said the decision
was made in the
context of a challenging environment for C4 processing, which continues to be
hit by
reductions in contract crude C4 supply due to olefins operating
rates and lighter olefins feedstocks. A
180,000tpa PP facility owned by
Sunoco in Bayport, Texas, closed in April as it is no longer financially
viable, although three other units at the site will remain open. It is unclear
how much capacity is likely to
be taken offline during the recession as
trends are difficult to anticipate.
BMI anticipates a prolonged recession
with output down 4.0% in 2009 and a further 1.6% in 2010,
followed by
growth of just 0.3% in 2011. This gives an indication of how the recession
will affect the
petrochemicals industry' s end-use markets. Even as the US
industry emerges from recession in 2011,
BMI foresees problems for
petrochemicals producers until 2013. Indeed, by that time ethylene
capacity
will have fallen to 27.8mn tpa.
BMI forecasts that by
end-2013, capacities will fall by 1.5mn tpa of ethylene, 540,000tpa of PP,
500,000tpa of PVC and 600,000tpa of PE, with plants with capacities under
200,000tpa the most likely to
close due to their lack of competitiveness
on the global market. Small-scale crackers with capacities of
under
100,000tpa will certainly close. Between 2008 and 2013, 5.1% of ethylene, 3.9%
of PE, 6.5% of PP
and 7.0% of PVC capacities will have closed
permanently.
As well as the ongoing effects of recession, the industry is
faced with radical changes in the regulatory
environment. The shift
towards the Democrats in Congress and the election of President Barack
Obama
have created a new policy climate with greater stress on tackling
climate change through reducing carbon
dioxide emissions. This move has
major implications for the energy-intensive petrochemicals industry. A
bill seeking to make a 17% greenhouse gas emission reduction through 2020 has
raised objections from
the chemicals industry lobby. Concerns revolve
around the base-line for the targets, the technological
ability to cut
carbon emissions and the need for better access to more competitively priced
ethane
feedstock. The industry could find it difficult to maintain both
competitiveness on global markets and
meet its carbon targets.
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