The Trend of Capacity Reduction in European Ethylene Industry
2024-5-9
Recently, ExxonMobil and SABIC announced separately the closure of a set of ethylene plant in Europe. Market insiders said that although the closure of these two sets of plant would not have a significant impact on the serious overcapacity of ethylene in Europe and the world, they might be the first step in the expected rationalization adjustment of production capacity in the European ethylene industry.
Market analysts have long pointed out that in Europe, where naphtha is the main feedstock for steam cracking, the region is at a competitive disadvantage compared to regions using ethane as the feedstock. The profitability of naphtha cracking in Europe is below the reinvestment level. Similarly, due to high costs, Europe¡äs share in global ethylene derivative demand has declined from 16.5% in 2010 to 9.9% in 2023. Currently, ethylene production in Europe is unprofitable, and plant utilization rates are relatively low. Therefore, market analysts believe that there is no need for the region to maintain excessive ethylene capacity. European market analysts have indicated that to increase the utilization rate of European cracking plants to an average of 90%, an additional 1 million tons/year of ethylene capacity needs to be withdrawn by 2026. If ExxonMobil and SABIC can improve the financial situation of their European operations by reducing capacity, other companies are likely to follow suit.
It is worth noting that the current decision to close European plants is being made by companies outside Europe. They have low-cost plants in the United States and the Middle East, so they can make strategic choices without hesitation. ExxonMobil and SABIC can leverage their low-cost plants in the United States and the Middle East to rebalance their global sales and operational plans, ensuring that their market share in Europe will not be affected. However, for European local companies, making the decision to cut capacity is undoubtedly more difficult. But market analysts predict that European local ethylene capacity will also be reduced unless they can find cheaper raw materials. Currently, some European cracking plants, such as Ineos¡ä plants in Grangemouth, UK, and Rafnes, Norway, have switched to using ethane imported from the United States, giving them a cost advantage compared to many naphtha-based cracking plants in Europe. If the geographical location permits and the plants switchover is flexible, other European ethylene cracking plants should also consider using liquefied petroleum gas (LPG) as a raw material. Otherwise, they may find it difficult to survive in the wave of capacity reduction.
Market analysts have long pointed out that in Europe, where naphtha is the main feedstock for steam cracking, the region is at a competitive disadvantage compared to regions using ethane as the feedstock. The profitability of naphtha cracking in Europe is below the reinvestment level. Similarly, due to high costs, Europe¡äs share in global ethylene derivative demand has declined from 16.5% in 2010 to 9.9% in 2023. Currently, ethylene production in Europe is unprofitable, and plant utilization rates are relatively low. Therefore, market analysts believe that there is no need for the region to maintain excessive ethylene capacity. European market analysts have indicated that to increase the utilization rate of European cracking plants to an average of 90%, an additional 1 million tons/year of ethylene capacity needs to be withdrawn by 2026. If ExxonMobil and SABIC can improve the financial situation of their European operations by reducing capacity, other companies are likely to follow suit.
It is worth noting that the current decision to close European plants is being made by companies outside Europe. They have low-cost plants in the United States and the Middle East, so they can make strategic choices without hesitation. ExxonMobil and SABIC can leverage their low-cost plants in the United States and the Middle East to rebalance their global sales and operational plans, ensuring that their market share in Europe will not be affected. However, for European local companies, making the decision to cut capacity is undoubtedly more difficult. But market analysts predict that European local ethylene capacity will also be reduced unless they can find cheaper raw materials. Currently, some European cracking plants, such as Ineos¡ä plants in Grangemouth, UK, and Rafnes, Norway, have switched to using ethane imported from the United States, giving them a cost advantage compared to many naphtha-based cracking plants in Europe. If the geographical location permits and the plants switchover is flexible, other European ethylene cracking plants should also consider using liquefied petroleum gas (LPG) as a raw material. Otherwise, they may find it difficult to survive in the wave of capacity reduction.