The European plastics industry is in the midst of massive structural changes in terms of its feedstock supply. Key words in this respect include shale gas and globalisation, just two of the topics that are challenging the existing practices of European plastics processors, and not just in terms of security of supply. During the afternoon session of the KI Group Polymer Summit K 2016, held on 20 October, industry experts outlined their views on this issue, presenting a range of different future scenarios and potential opportunities.

At the beginning of the session, KI editor in chief Daniel Stricker explained that European refinery capacities have contracted by about 10% over the course of the past 10 years. BP estimates that another 20-25% will be slashed in the future – with the relevant results for the mostly naphtha-based plastics production landscape in Europe. The main reason behind this change is the availability of cheap shale gas from the US, which Ineos (Rolle / Switzerland; www.ineos.com) director Tom Crotty called a game changer. The exploration of the Marcellus basin in particular has resulted in a boom in the shale gas business. The present exploration volume of more than 425 m³ per day is almost twice as high as the UK’s current gas demand, Crotty said. And the peak has not yet been reached – the licenses granted for Marcellus so far only cover 5% of the field’s entire contents.

The large availability of ethane has driven US gas prices down, and resulted in the build-up of comprehensive C2 and downstream capacities across the Atlantic. European suppliers, meanwhile, are increasingly unable to compete with their US counterparts. For Crotty, it is clear that this situation will result in additional rationalisations, plant closures and more consolidation within the European plastics production landscape. Ineos, which has grown massively over the course of the past 15 years as a result of numerous acquisitions, is actively working to benefit from this shift. The company plans to take advantage of the cost benefits offered by shale gas. With that in mind, it has built a number of special ships capable of transporting liquid ethane from the US to its cracker sites in Rafnes / Norway and Grangemouth / UK. At the same time, the company is actively lobbying for the exploitation of the UK's shale gas reserves.

Benny Mermans, general manager Europe/Africa at Chevron Phillips (The Woodlands, Texas / USA; www.cpchem.com), also expects European plastics production to consolidate. However, since demand continues to rise, he anticipates that exports from the region will decline, while import activity will pick up noticeably. The result will be a marked shift in global trade flows. Against this background, he said, it is in Europe’s own interest to do away with all trade barriers.

Pojhan Vahabi, CEO of distributor Aspen Global Solutions (Lyon / France; www.aspen-gs.com), added that Iran is also a new source for feedstock, pointing out that the country is home to the world’s largest gas reserves, while its oil deposits place it on rank four in the global listings. The cost basis of the country’s light feed crackers is lower than that of the US, he said, as a result of which it should come as no surprise that Iranian producers are planning large-scale capacity expansions in the future. If all these projects are realised, Iran’s polyolefin capacities will increase from the current 4.95m t/y to 9.44m t/y. For now, however, only a fraction of the country’s output is exported to Europe – in the case of PE, for instance, it is a mere 1%. The main importer of Iranian PE is China, and other important end markets include the United Arab Emirates and Turkey. However, Vahabi added that once the new capacities in Iran come on stream, Europe could become a more prominent end market.

“The world is full of production capacity,” said Heinrich Lingnau, senior vice president Europe, Middle East and Africa at A. Schulman (Akron, Ohio / USA; www.aschulman.com). He added that the European plastics industry should take advantage of the opportunities that emerge from the current market shifts. For both producers and processors, for instance, customer demands are becoming increasingly important – including reliable and timely supply. Citing the title of the book by Jason Jennings and Laurence Haughton, he said, “It’s not the big that eat the small… It’s the fast that eat the slow.” Areas with promising growth rates, Lingnau said, are lightweight solutions, functionalities and surfaces.

Anne Hippert, director of Corporate Strategic Accounts at PolyOne (Cleveland, Ohio / USA; www.polyone.com), said innovation is the key to the future success of the European plastics industry. She added that the slow growth rates of global trade – anticipated to increase by just 1.7% this year – are also to some extent responsible for the change in market conditions. The slow gains is partially the result of the low oil price, as well as the fact that the key economies of China and the USA are increasingly turning their attention inward. In many countries, she said, a certain “anti-globalisation” atmosphere is spreading.

The latter trend is particularly palpable in the UK, which in June voted in favour of leaving the European Union and now appears to be willing to give up its unlimited access to the EU market. Mike Boswell, head of distributor Plastribution (Ashby / UK; www.plastribution.co.uk), provided an overview of Brexit’s potential impact on the UK’s GBP 23.5 bn plastics industry. One outcome, he said, are 6.5% duties on both imports and exports in EU deals. At the same time, the country’s skills shortage could worsen. After all, about 18,000 of the total of 170,000 employees in the UK plastics industry are not UK citizens.

Despite the high production costs in Europe compared to elsewhere in the world, the region is still an attractive manufacturing hub for Chinese players, said Kingfa (Guangzhou, Guangdong / China; www.kingfa.net) general manager Christof Krogmann. The world’s largest compounder recently opened its first European plant in Wiesbaden / Germany. The decision to do so was largely the result of customer orientation, Krogmann explained, adding that Kingfa’s European customers with production facilities in China are also eager to source the group’s materials in Europe.