EMEA petrochemical outlook H2 2018

New global supply will continue to set the tone for European petrochemicals in the second half of the year while economic fences being built across the globe bring trade flow uncertainty.

The long-awaited cracker and methanol capacities in other corners of the world are finally starting up and are already sending ripples to Europe.

The impact translates far and wide: from delays to counterintuitive run rate decisions to further scrutiny of contract price mechanisms, massive inter-regional price gaps and deterioration of producer margins.

Amid the turbulence however opportunities are emerging. Ineos’ announcement that it plans to build a propane dehydrogenation plant and the first new cracker in Europe for two decades shows that the company is looking to catch the wave of cheap feedstock gas.

Trade flows will continue to shift as major economies pursue ever more protectionist policies. The Trump administration’s latest round of proposed tariffs on Chinese goods includes a long string of petrochemicals, both raw materials and items made from plastic resins, with the US-China trade war showing no sign of abating.

Styrene looks to be first in line for trade flow upheaval on the European horizon. New trade routes will establish in the second half of the year as a result of China’s antidumping duties on styrene imports from South Korea,

Taiwan and the US. Higher EU exports to China and a surge in EU imports of US and South Korean volumes are expected, notwithstanding significant logistical challenges.

The European paraxylene market is also set for fluctuating trade flows amid a regional demand hike downstream. Some see potential for Europe to flip from net exporter to net importer of PX following the restart of Indorama’s Sines PTA plant in Portugal.

It is unclear for now whether the plant’s feedstock needs can be met by local production alone, but there’s no doubt that the region’s PX supply surplus will subside.

Longer term, burgeoning environmental consciousness is contributing to fundamental change in European plastics. The first six months of 2018 witnessed a torrent of company commitments to reduce the use of single use plastics and increase recyclability of and recycled content in packaging. Although it is unlikely that any major switches will happen in the second half of this year, the pressure is mounting.

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