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United Kingdom Petrochemicals Report Q2 2010
Market |
Energy and Utilities |
Report Type |
Market Research |
Country |
United Kingdom |
Published |
3 March 2010 |
Number of Pages |
58 |
Download |
|
Immediate |
|
Publisher |
Business Monitor International |
Government attempts to boost the British chemicals industry are unlikely to hold back the tide, with foreign investors turning their backs on high-cost units in developed markets for mega projects in emerging markets in Asia and the Middle East, according to the latest UK Petrochemicals Report. We foresee 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 smaller plants closing. Where the UK can succeed is in higher value chemical products that require the research and development capabilities that are less common in emerging markets. A greater focus on low-carbon and cleaner technologies will define the future of British chemicals. While capacities will be cut, we believe that the industry’s turnover will be sustained by an increase in the value of British manufactured products. In December 2009, the British government announced in its pre-budget report a rescue package for manufacturing in north east England, including a GBP20mn investment in the Wilton International site, the location of a significant chemicals cluster. The plans aimed to strengthen and sustain competitiveness and employment in chemical businesses. In a bid to support low-carbon manufacturing, a further GBP30mn was agreed for projects in Teesside, which will include the re-development of industrial land and infrastructure, investment to establish bio-based materials, to reduce the energy use of industry in the area, for initiatives on carbon capture and storage and support for technology transfer and new business practices.
The move was welcomed by the Chemicals Industry Association (CIA), which had earlier demanded government action to maintain and enhance business investment through support for research and development. 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 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. The CIA survey 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.
Over and above restocking, there are significant uncertainties. The housing market appears to be picking up, opening up the probability of an increase in new housing starts, but the strength and sustainability of construction growth is in doubt. After a 12.3% contraction in 2009, the construction industry is expected to post growth of just 0.5% in 2010, offering little stimulus to the petrochemicals industry. Consequently, it is likely to be hard for the petrochemicals industry to make the transition from a recovery based on inventory rebuilding to one led by sustained overall demand increases. All the evidence points to a large amount of productive capacity having been destroyed – mainly through plants being closed down – which will mean that industry may not be able to ramp up production as quickly once global demand starts to return. We believe it will take until 2012 for the UK to post above-trend growth of 3.0%. The pro-cyclical nature of the UK petrochemicals industry means that it could post a fall of 8-10% in production volumes in 2009.
The UK scores 70.8 points in The latest Western Europe Regional Rankings, down 2.3 points since the previous quarter due to deteriorating market conditions. The decline in its score leaves it in fifth place, down two places since the previous quarter and lying 1.0 point behind the Netherlands and 4.3 points ahead of Spain. The decline in the score is related to plant closures and a sharp deterioration in the country’s overall risk scores.
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