EMEA petrochemical outlook H1 2018

Rising domestic feedstock costs and new global supply will set the tone for the European petrochemicals industry in 2018, with a higher oil price environment overshadowing three years of remarkable margins for European asset-holders.

In what is shaping up to be a year of two halves, producers may experience an easier ride in the run-up to summer. Numerous planned outages at steam crackers across the region will tighten European supply and allow greater scope for appreciating costs to be passed through to customers.

On the flip side, converters will initially have to brace for tight feedstock availability and higher prices, looking forward to the second half when new capacities in other regions ramp up production and new resin starts penetrating the European and Turkish markets.

Rising crude oil prices have already given the European methanol market an upward push at the break of the year, but the trend is unlikely to continue beyond the first half as new methanol plants come on-stream in the US. Some European players might chose to embrace the increased volatility by seeking higher exposure to the spot market and through the development of more sophisticated hedging instruments.

In aromatics and blendstocks, a steep increase in chemical demand for toluene will further widen the disconnect between toluene and gasoline price trends. By contrast, European MTBE is likely to maintain its relationship with gasoline, entering 2018 with a marked lack of optimism amid limited arbitrage opportunities and poor blending margins.

Regulatory change may destabilize some petrochemical markets. Styrene lies under a cloud of uncertainty pending China’s next steps on anti-dumping duties, which could transform trade flows globally. China may also extend its consumption tax on oil product imports to blending components, with potential to create a supply glut for mixed aromatics in Europe. The European Union ban on mercury-based technology will meanwhile leave Europe short of chlorine and caustic soda, opening up extra opportunities for imports throughout 2018.

Overall, import dynamics may well be the biggest driver of change for European markets in the year ahead. Europe is likely to see rising imports of numerous petrochemical products, both as a result of lower domestic production – temporary or permanent – and as new capacities elsewhere in the world look to Europe as an attractive outlet.

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