European Plastics Market Struggles with Supply Shortage
With crackers and resins plants down across the continent and prices soaring, suppliers and their customers need to find solutio
Until recently, most chemical players outside the petrochemicals segment may have taken scant notice of the vast upheaval sweeping the upstream petrochemical and plastics production market for the past several months. When BASF on May 19 declared force majeure (FM) for ethylene-oxide (EO) based products in its Care Chemicals portfolio, due to a captive shortage of the ethylene derivative, it was a wake-up call for many.
To regular customers for commodity plastics used in packaging, compounding, masterbatch or other downstream applications, such notices are nothing new. Since winter rolled over into spring and demand for polymer moved into high gear, European buyers of polyolefins, styrenic polymers, PVC or PET dread to open mail from their suppliers. Hardly a day passes, it seems, in which no producer declares force majeure.
From March to May the European market saw at least 35 FM declarations from players at important petrochemical and plastics sites from Spain to Germany, France to Belgium, from the Netherlands to the UK and Portugal. The list of companies declaring FM reads like a Who’s Who of the plastics industry, including along with BASF the likes of Ineos, LyondellBasell, SABIC, Total, Shell, Repsol, Versalis, Vinnolit, Vestolit and Kem One (the former Arkema PVC business).
The list of reasons for the outages is also lengthy. Shutdowns or production glitches at resins facilities have often followed cracker closures. Some of the FMs are easily explained – no ethylene, no polyethylene – although desperate converters are not always satisfied with the explanations.
Some of the cracker closures – occurring notably at the Shell Deutschland Oil cracker at Wesseling, Germany and the Total cracker at Lavéra, France – have been blamed on fire. Often, however, the justification is simply unforeseen technical problems or equipment failure. Details as to why the Repsol cracker at Tarragona, Spain, is down – causing repercussions for the Spanish petchems giant’s downstream plastics supply – have not been revealed.
As outage follows outage, plastics converters have been hard pressed to nail down sufficient tonnage to supply their own customers’ requirements, and the murmur of complaints about disruptions of “epidemic proportions” has swelled to a crescendo. With the German industry association IK Industrievereinigung Kuntstoffverpackungen at the forefront, packaging producers have been especially vocal.
In chorus with the French packaging producers’ grouping Ellipso and the UK association Packaging and Films Association (PAFA), IK has openly suggested that not all of the upstream shutdowns may be due to production problems. Some, it suspects, may have more to do with polymer producers’ desire to improve their margins.
Remarking that it, too, was “not convinced” that all the FMs were justified, the European Compounders and Masterbatchers Association in late April said it was investigating the “critical situation.” Up to now, however, the grouping has not publicly shared any findings. The polymer supply side has been relatively silent on the controversial subject, although one PVC maker wrote its customers at the end of May that while management shared their disappointment, “there is no spare ethylene left in Europe.”
While commodity plastics buyers feel themselves “on the short end of the stick,” European producers, who must compete with players in lower-cost regions such as North America and the Middle East, also find themselves in a bind. Even if prices for crude oil have come down, the relief has not been felt in all downstream markets. As the price of one raw material comes down, another often goes up. With the tightening, prices for standard thermoplastics are soaring, but how much a producer can improve its margins depends in part on the degree of integration.
The fall in the value of the euro has also compounded the European plastics sector’s woes. For North American polymer suppliers, the price bonus in euro terms and the shortage across the Atlantic, in theory, should be creating a bonanza. In fact, a rush to export to Europe has not yet materialized, observers note, despite vague reports that shipments are on the way.
In part, the buyers’ side attributes the European plastic resins shortage to capacity cutbacks at producers in recent years, while producers explain that a global glut, fierce competition and the high cost of operating high-energy production facilities preclude any new investment at home.
Mouths watering with thoughts of the cheap and tasty pie US competitors have been enjoying, thanks to cheap shale gas-derived feedstock, many European players have long casted a long glance at prospects for building new plants across the Atlantic. More recently, the vision has been blurred by the oil price plunge, but as Europe is evidently not benefiting, many companies may be pulling out their calculators again.
European plastics buyers, too, may be warming to the idea of filling their inventories from western sources, especially as the hoped-for influx of material from the Middle East has disappointed. The only question seems to be one of price. At its annual meeting at the end of May in Warsaw, the European Plastics Converters association EuPC called on Brussels to suspend import duties on polymer shipments from North America. The increased use of recyclate was also a topic.