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France Petrochemicals Report Q4 2011
Business Monitor International, Sep 2011, Pages: 45
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.
The French petrochemicals industry is showing strong growth, but remains vulnerable to a potential slowdown in domestic demand as well as increased competition with imports and cost pressures, according to BMI’s latest France Petrochemicals Report.
In Q111, French chemicals output grew 9.9% y-o-y and 7.1% q-o-q, according to the Union des Industries Chimiques (UIC). Strong growth is expected to continue throughout 2011, assisted by a low base in Q410 when output was disrupted by strikes and weather conditions. As a result of positive results in Q111, BMI has raised its growth forecast for the year to 3.2% from 2.5%. Growth is likely to moderate in 2012 as the industry approaches pre-recession norms with a rise of 2.2%.
Activity has been driven by both international and domestic markets. Chemical exports were up 15.3% yo- y in Q111 while imports grew 22.3% y-o-y, suggesting a healthy domestic market. Inventory levels were still low by mid-2011, keeping the market tight and assisting with improved capacity utilisation. The automotive industry, led by growth in emerging market, along with new opportunities in energy and sustainable development are driving demand. However, the construction industry continues to underperform, affecting chloride and its derivatives such as PVC. Inorganic chemical production is set to grow by around 3.0% in 2011 due to sales of industrial gases and fertiliser. Meanwhile, polymers are benefitting from industrial demand and consumer goods in all market sectors – automotive, electronics and consumer goods.
Downside risks include inflationary pressures and changes in purchasing power, which could affect demand for consumer goods. Stalling consumer confidence and fiscal cuts will start to weigh on household spending, while unemployment is set to remain above pre-crisis 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. 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.
For domestic production, the influx of imports remains a point of concern given the deterioration in the chemicals trade balance in Q111. Raw material supplies and the volatility of short-term costs are also areas of uncertainty for sustaining margins. Added to this are regulatory pressures as well as uncertainties associated with political events in the Middle East and the next round of elections in France.
France scores 71.7 points in BMI’s petrochemicals ratings, unchanged since the previous quarter. This puts it in second place in our Western European Petrochemicals Ratings, 8.1 points behind Germany and 0.7 points ahead of Belgium. France’s score has been undermined in recent months by poor long-term financial and external ratings as well as the effects of strike action 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 shutdowns in coming years, although its situation is not unique in Western Europe.
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