Recently, ExxonMobil and Saudi Basic Industries Corporation (SABIC) respectively announced the closure of an ethylene plant in Europe. Market insiders say that although the closure of these two devices will not have a significant impact on the severe ethylene overcapacity in Europe and the world, they may be the first step in the expected rationalization of production capacity in the European ethylene industry.
Market insiders have long stated that in Europe, as naphtha is the main raw material for steam cracking, the region is at a competitive disadvantage compared to regions that use ethane as the raw material, and the profit margin of naphtha cracking in Europe is lower than the level of reinvestment. Due to high cost issues, Europe's share of global demand for ethylene derivatives has decreased from 16.5% in 2010 to 9.9% in 2023. At present, ethylene production in Europe is not profitable and the utilization rate of the equipment is relatively low. Therefore, market participants believe that there is no need to preserve excessive ethylene production capacity in the region. European market insiders have stated that in order to increase the utilization rate of cracking plants in Europe to an average of 90%, it is necessary to exit 1 million tons/year of ethylene production capacity by 2026. If ExxonMobil and SABIC can improve the financial situation of their European business by reducing production capacity, other companies are likely to follow suit.
It should be noted that currently, companies outside of Europe are choosing to shut down their European facilities. They have low-cost installations in the United States and the Middle East, so they can make strategic choices without any concerns. ExxonMobil and SABIC can leverage low-cost facilities in the United States and the Middle East to rebalance global sales and operational plans, ensuring that their market share in Europe is not affected. For European domestic companies, making a decision to reduce production capacity is certainly more difficult. But market insiders predict that domestic ethylene production capacity in Europe will also be reduced unless it can find cheaper raw materials. At present, some cracking units in Europe, such as the factories of Ineos in Grangemouth, UK and Lavnis, Norway, have switched to using ethane imported from the United States, which gives them a cost advantage over many naphtha cracking units in Europe. If the geographical location allows and the device switching is flexible, other European ethylene cracking units should also consider using liquefied petroleum gas as a raw material, otherwise they may find it difficult to survive the wave of capacity reduction.
Source: China Chemical Daily
