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Too hard for ethylene producers this year

 Last Update: 2022-08-23
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ICIS recently pointed out that the analysis of the profit cycle of ethylene production shows that global ethylene producers are facing severe challenges this year

Before the outbreak, the globalized industry was already under a lot of pressure from excess ethylene capacity

Company profit warning

While the Covid-19 outbreak didn't really hit Europe and the U.
S.
seriously until March, its impact, combined with a general slowdown in chemical companies' earnings in the first quarter, has been staggering

Many large chemical companies in Europe saw double-digit declines in earnings before interest, tax, depreciation and amortization (EBITDA) in the first quarter of this year

In the first quarter, Dow Chemical's profit fell 39.
8% year-on-year to $439 million

Capacity is increasing

On June 10, the Organization for Economic Cooperation and Development said that if there is no second wave of the epidemic, global GDP is expected to fall by 6% in 2020, and the unemployment rate will climb from 5.
4% in 2019 to 9.
2% this year

From 2019 to 2020, chemical companies have seen their profit margins slump, especially in Europe, noted James Wilson, senior analyst at ICIS

From 2017 to the present, the United States has added 11 million tons of ethylene capacity per year

Reorganization is inevitable

Wilson believes that it is necessary to cancel plans for some new ethylene projects and rationalize existing ethylene production facilities, but as the US ethane feedstock advantage wanes (the global crude oil price has fallen sharply, the price of naphtha has also fallen.
, the cost gap between ethane-based ethylene units and naphtha-based ethylene units has narrowed significantly), and the position of ethylene production units at a global competitive disadvantage is less obvious
.
Previously, naphtha-based ethylene production units in Europe and Asia were clearly at a disadvantage when U.
S.
ethane feedstock costs had a significant advantage
.
In January, the U.
S.
ethylene-based ethylene unit had a production cost advantage of about $750 per tonne of ethylene compared with Northeast Asia naphtha-based ethylene units, compared with $150 per ton today
.

"We're looking at the fixed and variable costs of ethylene production units, where they go to the market, and how integrated they are," Wilson noted.
"The other big factor is government support and social factors
.
"

John Richardson, Senior Consultant at ICIS Asia, said: "This year is the last year of China's 13th Five-Year Plan, and companies that have not yet achieved their planned targets may increase their efforts to achieve them, so there will be A lot of production capacity will be completed and put into operation before the end of this year
.
”

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