After a stellar run in sales growth and profitability, the European petrochemical industry is set to enter a new phase, where multiple challenges are weakening the prospects of another bullish year. Margins are falling for naphtha-based chemical and polymers producers, as higher oil-related feedstock prices have failed to translate into an increase in downstream sales prices. Thus, the ability to pass on cost hikes will depend on whether the market favours buyers or sellers.
Key indicators point out that buyers may have the upper hand as 2018 moves to a close. The European purchasing managers’ indices are heading downwards for many months, such as those for China, leaving only the US in a bullish zone. Stock markets across economies are jittery as fears grow regarding the ability of emerging markets to repay US$-denominated debt. As interest rates rise and the US$ strengthens, debt is poised to become a lot more expensive to service.
By 2025, the EU has set a target of 50% recycling for plastic waste, with producers being given mandatory responsibility for management of the waste a year earlier. By 2030, all EU plastic packaging must be recyclable. Although a long way off, these targets will almost certainly impact demand for virgin polymers. Producers need to act now to develop packaging that is truly recyclable or invest in chemical and mechanical recycling.
