20 percent of European Chemical Capacity to be at Risk by 2015
The European chemical industry is set to face serious challenges over the next five years, with KPMG forecasting that 20 per cent of the sector's base chemical capacity may become unsustainable by 2015.
With global demand collapsing in the wake of the recession and increased competition from low-cost suppliers in the Middle East and China, the European chemical industry is walking uncertainly into the dawn of a new era for global chemical production.
However, KPMG believes that companies across the sector will now be forced to take even more severe action by closing unprofitable facilities which will be impacted by new, more efficient plants planned to come on stream outside Europe.
Chris Stirling, head of KPMG's chemicals and pharmaceuticals practice in the UK and Europe, said: "Current forecasts suggest that globally, there will be a 15 percent overcapacity in the ethylene production market by 2015. As a result, as many as 40 of the 200 ethylene crackers around the world may no longer be economically sustainable, with 14 of these at risk in Europe. Closure of these plants could prove to be straw that breaks the camel's back for the European industry, particularly when you consider that at present, the 14 worst ranked plants in Europe account for more than a quarter of total capacity."
It is believed small naphtha-fed, land-bound units could be most at risk from closure, while well-integrated LPG-fed coastal units will be less vulnerable.
Chris Stirling said: "While this is cause for concern, it's important to stress however that I don't believe that death knells are ringing across the European industry just yet. Remember that this remains an industry which employs over 1.2 million people and contributed in 2007 to a European Union trade surplus in chemicals of €35.4 billion. So, while there's no doubt the shape of the global industry is changing, there are steps that can be taken to ensure that European businesses continue to punch their weight on the worldwide stage."
He explained: "For instance, companies need to make hard honest choices now to rationalise those unprofitable facilities that cannot compete with newer, more efficient plants being built outside Europe and instead, ruthlessly focus resources and investment on those chemical clusters which do remain competitive. Additionally, they should also try to capitalise on their historic advantage in innovation to stay ahead of the competition from the East, especially in terms of developing sustainable solutions that will undoubtedly become increasingly in demand over the next few years."
Chris Stirling concluded: "Finally, European firms should actively seek beneficial joint ventures and strategic alliances that provide access to both cheap Middle Eastern feedstocks and the burgeoning Asian markets. While such joint relationships do involve an element of trade-off, they should very much be seen as an opportunity to develop a presence in new overseas territories."
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