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"The Dawn of a Fresh Reality” – How the European Chemicals Industry is Coming to Terms with the New Normal

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“The Dawn of a Fresh Reality” – How the European Chemicals Industry is Coming to Terms with the New Normal
by Ruben Gil, director sales operations and business consulting, AspenTech EMEA

While the industry worldwide is still reeling from the current cyclical downturn and the recent global recession, chemical companies in Europe are particularly preoccupied with the ongoing rise of new competition in the Middle East and Asia (especially from China and India). Today, we appear to be seeing an inexorable shift eastward in the global chemical industry, particularly at the bulk/commodity end of the sector.

Indeed, industry research suggests that new global capacity being developed in the coming years will render 14 of 43 crackers in Europe uneconomical by 2015. The closure of these plants would correspond to the loss of 26 per cent of total cracker capacity in Europe.

At the same time, Middle Eastern chemical producers continue to seek expansion along the value chain into higher value add solutions. Their Chinese counterparts are attempting to fulfil a government directive to make the country self-sufficient in chemicals. These Middle Eastern and Chinese entities are often cash-rich and backed by government support. A rapid path to achieving their goals appears to be offered by acquisition of technology and intellectual property from a European chemicals industry seemingly beset by structural problems.

Fighting Back

It should be noted that, despite its current issues and concerns, the industry in Europe still employs over 1.2 million people and contributed in 2007 to a European Union (EU) trade surplus in chemicals of €35.4 billion. There is no doubt that the shape of the global chemical industry is changing, but the industry in Europe can continue to play a significant role in this new reality. 

To do so, however, it first needs to make hard choices now to rationalise unprofitable facilities that might not be able to compete with newer, more efficient plants being built outside of Europe. Second, it must be prepared to ruthlessly identify, which chemical clusters will remain competitive on the global stage, and focus resources and investment in these areas to ensure their long-term survival.

The industry must also capitalise on its historic advantage in innovation to stay ahead of the competition, especially in terms of sustainable solutions, which will be increasingly in demand and leverage its long-standing customer relationships to develop more specialised, higher-performance solutions. In addition, it should actively seek beneficial joint ventures and strategic alliances that provide access to both cheap Middle Eastern feedstocks and growing Asian markets.

Many European companies are already recognising the possible advantages — and the necessity — of repositioning themselves as solutions providers rather than just basic suppliers for their customers. This can include finding new ways to work with companies that have traditionally been perceived as major competitors. The companies that successfully achieve this transition should be better positioned to meet the global competitive challenges of the 21st century.

Looking Forward to a Positive Future

Production levels across the industry are returning to the levels achieved at the beginning of 2006. However, they are unlikely to get back to the heights reached in late 2006 and through 2007 – where production was at least partly tied up with volume associated with lending to the housing sectors.

The industry document “Budgeting for a new normal”, published on www.ICIS.com in December 2009 highlights that the industry has regained the levels of early 2006 after the ‘terrible collapse’ of the last couple of years. It is also positive about the future outlook with Paul Hodges, chairman of International eChem finding that ‘the end result is that we are now at a more stable position where growth, as it starts next year, should be based on real demand rather than speculative inventory accumulation.’  

Effectively the industry remains huge, particularly in Europe. The European Union (EU) is the world's most important producer of chemicals. In 2008, it produced €566 billion worth of chemicals. Further, 29,000 chemical companies employ a total staff of about 1.2 million people in the EU.

AspenTech is ideally positioned to help organisations across the sector maintain this recovery and maximise and sustain operational performance and profitability through its solutions for process optimisation.

AspenTech’s solutions help provide these companies with the agility to react quickly to market demands and opportunities. By using the AspenTech solutions to optimise business processes, organisations can achieve significant improvements in performance with payback in months instead of years. For key players in the European chemicals industry, such tools provide a means not only of coming to terms with the new normal but also over the longer term re-establishing Europe as a pivotal region in the global chemicals market, more than capable of holding its own against the emerging giants from China India and the Middle East.