United Kingdom Petrochemicals Report Q3 2009

The deepening global economic downturn continues to batter the UK chemicals industry, with BMI's latest UK Petrochemical's Report anticipating volatile market conditions in 2009 as the global recession deepens. Producers are feeling the impact of customers destocking amid a climate of a consumer downturn. UK petrochemicals firms are still feeling the ripple effects of this shockwave of slackening demand, and have idled plants and announced plans to cut back investments. BMI expects the challenging conditions to persist through the year and for UK producers to report lower cash flows in the short to medium term.

The sector is suffering from the shock of a dramatic fall in demand from construction, automotive, textiles and other key markets. Consequently, producers are idling plants, delaying new projects and cutting back investments. As a result of the market deterioration, high raw material costs and the weakness of sterling against the euro, a number of major petrochemical players operating in the UK reported weak results for Q109. In some segments such as PVC, firms found it difficult to pass on rising costs to consumers, in large part due to over-capacity throughout Europe. However, the softening of naphtha prices in response to falling global oil prices has brought some relief, particularly in segments where the fall in price has not been as rapid as the fall in costs. Moreover, for some majors Q109 saw some modest improvement on Q408 figures.

BMI believes that all the majors will see their bottom lines adversely affected by the lower prices of crude oil and natural gas. Royal Dutch Shell (Shell) and BP both reported sharp declines in profits for Q109. With Brent crude averaging around US$44 per barrel (bbl) in Q109 compared with US$97/bbl in Q108, both companies attributed their lower profits to the drop in crude prices. All the first-quarter results reported so far, however, have exceeded analysts' expectations despite steep falls in profits.

As part of its cost-cutting measures, BP intends to reduce 2009 spending on petrochemicals. But it intends to keep focusing new investments in Asia, particularly China. Construction of a new joint venture acetic acid plant in Nanjing is expected to be completed in June 2009, with sales expected to commence in Q309. Plans to add a new acetic acid plant at a joint venture site in Chongqing are currently under review due to market conditions. The plant was originally expected to begin operation in 2011.

In the long term, UK producers are likely to face additional pressure as an onslaught of new supply comes online in the Middle East and Asia. Asian markets are growing at a faster pace than European markets, with new investments being targeted at China. Despite the predicted pick-up in the economic situation from 2010, BMI believes that the massive growth in Asian and Middle Eastern petrochemicals capacity will continue to depress prices, possibly leading to the closure of some UK units.

• Executive Summary
• SWOT Analysis
• United Kingdom Political SWOT
• United Kingdom Economic SWOT
• Global Market Overview
• Global Ethylene Capacities
• Polypropylene
• Quarterly Oil Products Price Outlook
• European Overview
• Regulation
• Production
• UK Market Overview
• Market Structure
• Competitive Landscape
• Petrochemicals Business Environment
• Limits Of Potential Returns
• Risks To Realisation Of Returns
• Industry Trends And Developments
• Financial Results And Developments
• Refining
• Declining Reserves
• Mergers And Acquisitions
• Industry Forecast Scenario
• Special Economic Report - Britain On The Brink
• Company Monitor
• BP
• ExxonMobil Chemical
• Shell Chemicals UK
• Ineos
• Country Snapshot: UK Demographic Data
• Section 1: Population
• Section 2: Education And Healthcare
• Section 3: Labour Market And Spending Power
• BMI Forecast Modelling
• How We Generate Our Industry Forecasts
• Chemicals And Petrochemicals Industry
• Cross Checks
• Business Environment Ratings
• Weighting
• List of Tables
  • Table: World Ethylene Production By Country, 2008 And 2013 ('000 tonnes capacity)
  • Table: Oil Product Price Assumptions, Q408-Q409 (US$/bbl)
  • Table: Oil Product Price Forecasts, 2006-2013 (US$/bbl)
  • Table: Key Elements Of REACH
  • Table: Western Europe Petrochemicals Business Environment Ratings
  • Table: The UK's Oil And Gas And Petrochemicals Sector, 2004-2013
  • Table: The UK's GDP Per Capita, 2000-2013 (US$)
  • Table: Top 25 Countries - GDP Per Capita, 2007, 2010 And 2013 (US$)
  • Table: BMI's Short-Term Economic Risk Ratings, 2002-2009
  • Table: Demographic Indicators, 2005-2030
  • Table: Rural/Urban Breakdown, 2005-2030
  • Table: Education, 2002-2005
  • Table: Vital Statistics, 2005-2030
  • Table: Employment Indicators, 2000-2005
  • Table: Consumer Expenditure, 2000-2011 (US$)
  • Table: Average Annual Wages, 2000-2012
  • Table: Petrochemicals Business Environment Indicators And Rationale
  • Table: Weighting Of Indicators