Benchmarking
The Global Petrochemical Competitiveness Analysis (GPCA) provides an analysis of the current competitive position of the Western European petrochemical industry in relation to the other major producing regions: the United States, the Middle East and Asia. The report analyses the competitiveness of these four regions by considering the profitability of predefined chemical 'complexes', consisting of a steam cracker plus associated integrated derivative plants. These regional complexes have been carefully defined by Appe to be representative of production sites in each region.
Figure 19 shows the historical average integrated cash margin of a typical European complex as well as its main components.
The historical cash margin of a typical complex in the four main regions are indicated in Figure 20.
1st quarter 2005
Returns remained at historical peaks in most regions with little overall change from the previous quarter. This disguises however considerable volatility in both feedstock costs and polymer/intermediate prices. At the end of this quarter, polymer prices were generally falling.
The Middle East continued to generate spectacular returns on capital. Profitability for European and US complexes was also high and only the Japanese complexes, selling into domestic markets, were still failing to provide strong profitability. The competitive position of European petrochemicals has not significantly changed this quarter and prices remain high enough to generate positive margins for trade into South East Asia and Western Europe from all sources.
2nd quarter 2005
The competitive position of the European producers declined in the second quarter with a substantial drop in return on replacement capital. Poor polymer and glycol prices and consequently poor revenues led to substantially lower returns. The Middle East complexes, which sell polymers into Asia and Western Europe saw profitability hit by poor domestic prices in Asia and Western Europe, but returns remain very strong.
The petrochemical markets remained extremely volatile, but the relentless increase in petrochemical feedstock costs in all regions except the Middle East has proven to be too long and strong to pass through to consumers. The reaction has been a reduction in prices and the consequent drop in profitability.
The European archetype modelled in this analysis has provided the lowest return on investment of any region and so was the least competitive. The volatility of prices remained, but this quarter performance should not be taken as a trend.
3rd quarter 2005
The competitive position of the European producers declined in the third quarter. Poor olefins and petrochemical intermediates prices and consequently poor revenues led to substantially lower returns. The early settlement of the European contract olefin prices failed to predict the movement in feedstocks and resulted in the least profitable quarter for steam crackers since the start of this analysis in 1995. Although European polymer producers pushed through price increases late in the quarter, the lag from the feedstock cost increase, exacerbated by the quarterly fixed olefin price, led to margin squeeze.
The competitive position of the West European complexes declined again in the third quarter and lost further ground to both the Middle Eastern producers and the United States complexes. The West European steam crackers had their worst quarter since the start of this analysis in 1995 and were failing to cover costs.
4th quarter 2005
West European petrochemical producers regained some ground against cost leaders in the Middle East as the higher ethylene price restored margins back to the steam crackers.
The competitive position of the West European complexes improved in the quarter, gaining ground on both the Middle Eastern producers and the Asian complexes but fell further behind returns in the United States. The West European steam crackers recovered from the disastrous third quarter returning to positive margins and returns.
The West European archetype improved its return slightly but lags well behind the US and Middle East.
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