MarketLine Blog

Will Europe price itself out of the chemicals industry?

Jim Ratcliffe, Chairman of Ineos, is a worried man. In an open letter to the President of the EU Commission José Barroso, published on 7 March 2014, he expressed his concerns for the future of the very industry in which Ineos is a major player: chemicals.

Central to Mr Ratcliffe’s argument is the high prices of energy and feedstocks in Europe, which decrease competitiveness. Statistics from the Energy Information Agency and Eurostat bear out his premises. In the first semester 2013, for example, natural gas prices paid by industrial users in western Europe were on average more than three times higher than those paid by their competitors in the US, currently enjoying a shale gas glut. And in Germany, a huge contributor to the European chemicals sector, the price was an astonishing four times higher. A similar picture emerges for electricity, with an EU-28 average price of $0.15 per kWh for industrial customers more than double the price in the US, and Germany once again suffering some of the highest prices in the region, behind only Italy, Cyprus, and Malta.


Industrial prices, 2013

    Electricity, $ per kWh Natural gas, $ per GJ  











Since around 2007, the price of the feedstock ethylene remained significantly lower in the US than in Europe. During the years 2011-2013, the price in Europe rarely fell below $1,500 per ton, whereas in the US it rarely exceeded $1,250 per ton. Ethylene is the starting point for a wide range of chemical products, including the plastic resins polyethylene and PVC, thus high prices for ethylene mean that profitability is threatened further along the value chain.

But do the premises justify Mr Ratcliffe’s conclusions, that the chemicals industry in Europe could go the way of the textile industry if the EU does not take action?

It is certainly a chilling prospect. Textile manufacturing has been in long-term decline for several decades across Europe. In northern England, birthplace of industrialized weaving, the cotton mills that transformed cityscapes so dramatically in the nineteenth century had all but disappeared by the end of the twentieth. Might we really see Europe’s refineries and chemical plants falling into dereliction in their turn?

The threat may not be as great as he fears. The comparison with textiles is good in that developing economies had lower textile production costs due to their lower wage levels, just as the US and other regions have lower energy and feedstock prices. However, it neglects the fact that the textile industry is technologically quite simple, with few opportunities for added-value products. Chemicals manufacturing is a medium-high technology sector, and opportunities to create innovative specialty and fine chemicals, as well as commodities like resins, mean that the impact of raw material and energy prices can be offset to some extent.

It is to be hoped that Mr Ratcliffe’s pessimism is not justified. But he deserves credit for raising the issue. Whatever the solution to Europe’s high input prices may be, complacency is not an option.

Posted in Chemicals, Energy.

Leave a comment

*Required fields. We will not publish your email address