United Kingdom Petrochemicals Report Q2 2016
Above-trend petrochemicals consumption at a time when plastic and rubber output is sluggish should boostUK imports. The competitiveness of British petrochemicals production has been undermined by the lack oflocally available and competitively priced feedstock as well as the strength of the pound against the euro.
As such, British producers are in a weaker position to compete with foreign output.
British chemicals output grew 5.0% with petrochemicals up 6.7%. However, the manufacturing of rubberand plastic products fell 3.4%, reversing the gains made in 2014. The latest survey of business confidencefor members of the Chemical Industries Association (CIA) shows that more than 90% of businesses expectsales volumes to remain or exceed 2015 levels when there was a record 5% growth. More than 40% expectsales volumes to grow in 2016. This lends support to continued domestic petrochemicals growth.
The main downside risk comes from the lack of access to competitively priced feedstock in a global marketfacing over-supply. At a time when naphtha feedstock is declining in value, the recent drive to increaseethane as an alternative appears mistimed. While petrochemicals producer Ineos has secured gas importsfrom the US and acquired North Sea gas fields, these source may be not be price competitive in thelong run. Petrochemicals producers are calling for efforts to advance fracking for gas in order to boostethane availability. However, fracking is at a very early stage and the UK's shale gas fields may not providethe low priced feedstock it needs to compete with rivals in North America and the Middle East.
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