In the coming years, as numerous new petrochemical plants in the Middle East and Asia come online, a significant oversupply of products is expected to flood the global market. This surge in supply could severely impact the profitability of the petrochemical industry, potentially leading to a market downturn around 2010–2011. In response to this overcapacity, European petrochemical companies are actively seeking ways to strengthen customer relationships, enhance product value, and optimize their production capacities. However, industry experts remain cautious, noting that many uncertainties still lie ahead.
Analysts predict that approximately 20 million tons per year of new ethylene capacity will come online in the Middle East before and after 2010, with most of the output directed toward Asia, particularly China. Meanwhile, China is also expanding its own ethylene production, with an estimated 6 to 10 million tons per year of new capacity set to be added during this period. This will nearly double China’s total ethylene production capacity, reaching between 14 and 18 million tons annually. Some of these products may even be exported, reshaping the global petrochemical landscape.
Paul Hodges, president of eChem, a UK-based consulting firm, noted that this expansion could slow or even halt the growth of certain ethylene derivative imports in China once the new Middle Eastern crackers become operational. Shell Chemicals estimates that by 2010, China's self-sufficiency in polyethylene resin will rise from 50% in 2005 to between 64% and 74%, while the self-sufficiency rate for ethylene glycol is expected to increase from 20% to 30–54%. Similarly, the self-sufficiency of styrene monomer is projected to jump from 35% to 68–87%.
Colin McKendrick, president of Shell South Sea Petrochemicals, stated that although some Middle Eastern and global ethylene projects may face delays, the trend of oversupply and declining operating rates will persist for the next two to three years. Even with China’s large import volumes, it won’t be able to absorb all of the new capacity being built.
The impact on the European petrochemical market may not be as severe as feared. Over the past few years, European producers have continuously improved product quality and strengthened their market positions. Many European companies also maintain significant production facilities in the Middle East and Asia. For example, Sabic, one of the largest players, has expanded into Europe through acquisitions such as DSM’s petrochemical business and more recently, Hunts’ operations.
For many petrochemical products, including certain polymers, European imports remain minimal, allowing domestic producers to dominate the market. Additionally, European firms are focusing on developing specialty and custom products to meet specific customer needs.
According to the European Chemical Industry Association, from 2006 to 2008, the annual growth of petrochemical products is expected to reach 2%, with specialty chemicals growing at 3% and consumer chemicals at 4%. The pharmaceutical sector is projected to grow by 5.9%, while inorganic base chemicals will increase by 1.9%. Petrochemical-derived polymers, however, are only expected to grow by 1.1%. Overall, non-drug chemical growth is anticipated to be around 2.4%. International companies like Borealis and BASF are pushing forward with high-value-added strategies, accelerating the transformation of the European petrochemical industry.
Looking ahead, the long-term threat to the European petrochemical sector could come from cheaper coal-based petrochemical products, especially those from China. According to Shell analysis, China may build an ethylene plant with up to 20 million tons per year of capacity by 2020, mostly using coal as feedstock. It is also reported that China plans to invest RMB 100 billion in coal chemical projects by 2020, enabling it to export petrochemical products at significantly lower prices than the Middle East.
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