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United Kingdom Petrochemicals Report Q3 2010
Management Report
Published: June 2010
Pages: 51
Tables: For full details, please email keithw@cmsinfo.com
From: GBP 353.33 Buy Now!
Research from: Business Monitor International
Sector: Petroleum
Domestic market stagnation, political uncertainty and concerns over taxation could prompt an exodus of chemicals producers from the UK over coming months, according to BMI’s latest UK Petrochemicals Report.
Domestic market stagnation, political uncertainty and concerns over taxation could prompt an exodus of chemicals producers from the UK over coming months, according to BMI’s latest UK Petrochemicals Report.
According to the Office of National Statistics (ONS), investment in the chemicals sector in the first nine months of FY2009/10 averaged GBP600mn per quarter, which is 20% below average levels before the recession; in Q309/10, it was down by a third as the trend continued to decline. Affirming this downward trend in investment, Ineos is relocating its headquarters from the UK to Switzerland due to concerns over corporation tax and financing, possibly heralding an exodus of chemicals companies transferring their head offices outside the country leading to a sharp drop in R&D in the British chemicals industry. The company believes the savings in corporation tax will be around GBP394mn (EUR450mn) between 2010 and 2014.
Industry leaders have also complained that they are encumbered by burdensome regulation, energy problems and the continuing lack of business finance, which are acting as barriers to further investment in the UK. According to a CIA survey of business leaders in the chemicals industry that was published in November 2009, 68% felt that over burdensome regulation in the UK would act as a barrier to further investment, over half (53%) said energy security and price act as a key barrier and over one third (37%) cited the problem of credit availability. CIA pointed out that with 70% chemical businesses operating in the UK headquartered abroad and able to invest anywhere in the world, action was critical for the UK to compete for investment.
Investors are turning their backs on high-cost units in developed markets in favour of mega projects in emerging markets in Asia and the Middle East. BMI foresees poor prospects for basic chemicals, particularly when converters are cutting back and closing their UK operations. While petrochemicals capacities in Asia and the Middle East are climbing with the creation of 1mn tpa plus ethylene crackers, the UK is seeing some of its smaller plants closed down. In February 2010, Ineos ChlorVinyls announced it would stop producing PVC at its 125,000tpa Barry facility by end-Q210 due to falling demand. Ineos, the country’s only PVC producer, will instead supply from plants in Newton Aycliffe (245,000tpa) and Runcorn (115,000tpa). At the same time, Celanese said it was considering shutting its 100,000tpa acetate production facility at Spondon to reduce fixed costs and align production with demand. Operations would cease by end-2011, if a decision is taken to close the plant. These announcements came on the back of permanent closures carried out in 2009. In 2009, LyondellBasell closed its 185,000tpa LDPE plant at Carrington claiming it was no longer financially viable. This has been offset with Sabic’s new 400,000tpa LDPE plant in Wilton, but is nevertheless a significant setback for the British polyethylene industry. Dow Chemicals also closed a plant in Teesside with capacities of 320,000tpa ethylene oxide (EO) and 275,000tpa ethylene glycol (EG).
BMI forecasts chemicals output growth of 1.0% in 2010, following an estimated 5.0% decline in 2009. Chemicals industry investment collapsed, falling by around 18% in 2009 and is set to decline by a further 15% in 2010 in an economic situation that is increasingly worrying investors. The situation facing the petrochemicals industry is even more dire with plant closures continuing into 2010 despite an apparent bottoming out of the recession. In the short term, while the economy is lagging behind its European peers, notably France and Germany, BMI forecasts growth in the British market over 2010. BMI research has found that inventory levels are very low and this alone will stimulate modest demand growth in 2010. However, orders in the first few months of the year tended to be more limited due to buyers erring on the side of caution amid lingering doubts over the strength of the UK’s economic recovery.
According to the Office of National Statistics (ONS), investment in the chemicals sector in the first nine months of FY2009/10 averaged GBP600mn per quarter, which is 20% below average levels before the recession; in Q309/10, it was down by a third as the trend continued to decline. Affirming this downward trend in investment, Ineos is relocating its headquarters from the UK to Switzerland due to concerns over corporation tax and financing, possibly heralding an exodus of chemicals companies transferring their head offices outside the country leading to a sharp drop in R&D in the British chemicals industry. The company believes the savings in corporation tax will be around GBP394mn (EUR450mn) between 2010 and 2014.
Industry leaders have also complained that they are encumbered by burdensome regulation, energy problems and the continuing lack of business finance, which are acting as barriers to further investment in the UK. According to a CIA survey of business leaders in the chemicals industry that was published in November 2009, 68% felt that over burdensome regulation in the UK would act as a barrier to further investment, over half (53%) said energy security and price act as a key barrier and over one third (37%) cited the problem of credit availability. CIA pointed out that with 70% chemical businesses operating in the UK headquartered abroad and able to invest anywhere in the world, action was critical for the UK to compete for investment.
Investors are turning their backs on high-cost units in developed markets in favour of mega projects in emerging markets in Asia and the Middle East. BMI foresees poor prospects for basic chemicals, particularly when converters are cutting back and closing their UK operations. While petrochemicals capacities in Asia and the Middle East are climbing with the creation of 1mn tpa plus ethylene crackers, the UK is seeing some of its smaller plants closed down. In February 2010, Ineos ChlorVinyls announced it would stop producing PVC at its 125,000tpa Barry facility by end-Q210 due to falling demand. Ineos, the country’s only PVC producer, will instead supply from plants in Newton Aycliffe (245,000tpa) and Runcorn (115,000tpa). At the same time, Celanese said it was considering shutting its 100,000tpa acetate production facility at Spondon to reduce fixed costs and align production with demand. Operations would cease by end-2011, if a decision is taken to close the plant. These announcements came on the back of permanent closures carried out in 2009. In 2009, LyondellBasell closed its 185,000tpa LDPE plant at Carrington claiming it was no longer financially viable. This has been offset with Sabic’s new 400,000tpa LDPE plant in Wilton, but is nevertheless a significant setback for the British polyethylene industry. Dow Chemicals also closed a plant in Teesside with capacities of 320,000tpa ethylene oxide (EO) and 275,000tpa ethylene glycol (EG).
BMI forecasts chemicals output growth of 1.0% in 2010, following an estimated 5.0% decline in 2009. Chemicals industry investment collapsed, falling by around 18% in 2009 and is set to decline by a further 15% in 2010 in an economic situation that is increasingly worrying investors. The situation facing the petrochemicals industry is even more dire with plant closures continuing into 2010 despite an apparent bottoming out of the recession. In the short term, while the economy is lagging behind its European peers, notably France and Germany, BMI forecasts growth in the British market over 2010. BMI research has found that inventory levels are very low and this alone will stimulate modest demand growth in 2010. However, orders in the first few months of the year tended to be more limited due to buyers erring on the side of caution amid lingering doubts over the strength of the UK’s economic recovery.