European petrochemicals producers are at a crossroads, with most companies continuing to rationalize operations in a bid to be more competitive in an increasingly global market.
This is the view of Datamonitor plc, London, which said companies need to accelerate rationalization and operate on a global scale if they are to remain competitive.
"Europe is hindered by cost disadvantages and insufficient plant investment," said Datamonitor. "The issue of overcapacity has been compounded by problems of inefficient capacity."
The analyst said competing markets have outpaced Europe in the construction of world-scale facilities, while new capacity in the Middle East and the U.S. and reduced demand from Asia have increased imports into Europe. Middle Eastern producers have increased their output of derivatives for export to Europe, thus reducing demand for base petrochemicals from European producers.
"These competing markets," said Datamonitor, "have been able to penetrate Europe based on their cost advantages. The impact may include the loss of European exports, as those regions begin to supply other areas as well.
"Although rationalization efforts are increasing, the pace needs to continue to accelerate."
The analyst said that, through focusing activities, many companies will identify areas for cooperation to obtain more-effective operations: "The majority of producers clearly recognize that this is necessary to improve competitiveness, and several have indicated that they may soon be a part of this trend."
The planned merger of Exxon Corp. with Mobil Corp. and the formation of BP Amoco plc were said to highlight the trend towards interwoven global markets.
"BP Chemicals views its merger as a step towards more global consolidation of the petrochemical industry," said Datamonitor. "In BP Chemicals' view, the industry will be dominated by five or six major companies within the next 5 or 6 years.
"Few producers in Europe will be able to sit idly by during this time of transition. Those companies that make changes in the areas of rationalization and globalization will be most likely to be competitive in the long term."
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