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France Petrochemicals Report Q1 2011
Business Monitor International, Nov 2010, Pages: 41
Business Monitor International's France Petrochemicals Report provides industry professionals and strategists, corporate analysts, petrochemical associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on France's petrochemicals industry.
Industrial unrest in France has adversely impacted on both 2010 chemical output and the long-term future of some plants, according to BMI’s latest France Petrochemicals Report.
Widespread strike action sparked by government plans to raise the retirement age from 60 to 62 led to cuts in French chemical output in October 2010. Strikes hit the country’s 12 refineries, several of which have aromatics and propylene capacity, and the Fos-Lavéra oil terminal in the port of Marseille. The resulting refinery shutdowns, which severely limited naphtha feedstock availability, together with transport disruption and blockades of some petrochemicals complexes, caused cuts in production at chemical plants throughout France and hampered producers’ ability to export chemicals. According to the industry association Union des Industries Chimiques (UIC, Chemical Industries Union), the strike action cost the chemical industry up to EUR100mn per day in lost sales, more than 50% of which are the result of reduced exports. It estimated that the strike action led to production cuts of 50%-100% at some petrochemical sites, particularly at Berre, Fos, and Lavéra near Marseille and in the area around Lyon. Repeated strike action on this scale would severely undermine petrochemicals profitability in France, potentially leading to the mothballing or permanent closure of some plants. It was the second time in 2010 that the petrochemicals industry had been hit by strike action, with Total’s refineries hit by strikes in Q110 over the future of the refinery at Dunkirk.
Meanwhile, the economic downturn hit demand in crucial end-user industries such as automotive and construction. In H110, chemical production was up 15.1% y-o-y. The impact of strike action together with the removal of government stimulus and higher base effects means that growth for the year as a whole was closer to 7%. In reality, the petrochemicals sector will remain in an historic slump, following a 20-25% fall in output in 2009. The recovery in the chemicals market during 2010 – driven by a resilient consumer – is unlikely to be carried through into 2011 in our view. Stalling consumer confidence and fiscal cuts will start to weigh on household spending, while unemployment is set to remain above precrisis levels, particularly among the under 25s. Tighter fiscal policy and ongoing spare capacity will also limit fixed investment growth. On the political side, strike action is likely to be a continuing problem for the industry, leading to disruptions in output and possible long-term consequences for some plants. The economy as a whole is expected to see a slowdown, with GDP growth falling to 1.0% in 2011 from an estimated 1.5% in 2010. The petrochemicals industry will follow a similar trend with lower growth in 2011, still operating below par.
Private consumption should provide some relief, but we do not expect a fundamental recovery in household spending to get under way until 2012 at the earliest. France scores 73.2 points in BMI’s Western European Petrochemicals Ratings, putting it in second place, 8.7 points behind Germany and 2.2 points ahead of Belgium. The industrial unrest that plagued the sector in 2010 led to a 0.5 point decline in the country’s rating due to the effects on the market risk environment. The petrochemicals sector needs to overcome deterioration in external competitiveness and stagnation in domestic demand to hold on to the capacity it has, and prevent closures. France’s score is in danger of being eroded by capacity shut-downs in coming years, although its situation is not unique in Western Europe.
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