United Kingdom Petrochemicals Report Q4 2009

United Kingdom Petrochemicals Report Q4 2009

Petrochemicals had passed a nadir in mid-2009, but BMI’s latest UK Petrochemicals Report forecasts
that it will take some years for output to recover to pre-recession levels and during that time some plants
will be permanently shut with potentially devastating consequences for entire production chains.
The chemicals and man-made fibres industries appeared to buck the trend in the three months to May
2009, according to the Office for National Statistics. While overall manufacturing dropped 1.2%
compared to the previous three months, chemicals and man-made fibres recorded a 2.2% increase.
UK manufacturing in April increased 0.2% month-on-month (m-o-m) driven by chemicals and man-made
fibres, which represent about 11% of British manufacturing and increased 2.3%. Although output was still
down compared to the previous year, the consistent upward trend in chemicals should serve as
encouragement to UK petrochemicals producers. BMI attributes a large part of the increase in output to
complete destocking by petrochemicals consuming industries.
Nevertheless, the gloom has yet to lift from the industry with BMI expecting the challenging conditions
to persist through the year and for British producers to report lower cash flows in the short to medium
term. The effects of the recession could have a long-lasting impact on British petrochemicals with
downstream producers severely affected by a reduction in UK-based feedstock. In July 2009, Dow
Chemical announced it would close the UK’s only ethylene oxide/ethylene glycol (EO/EG) plant
at Wilton on Teesside in January 2010. Dow’s other Teeside operations are unaffected by the EO/EG
plant closure. The loss is expected to have a negative knock-on effect across the sector, prompting
Croda to announce the shutdown of its speciality chemicals plants on Teesside in January 2010. Artenius
and Petroplus could also cut back capacity. Already, Artenius’ 500,000 tonnes per annum (tpa) PTA plant
at Wilton has been idle since March 2009 and Petroplus announced in February it would sell its Teeside
refinery. The decision could have implications for Sabic, which supplies ethylene to Dow from its Wilton
cracker. The loss of supplies to Dow will be partly offset by Sabic’s 400,000tpa LDPE plant at Wilton,
which is due to come onstream in H209 and will eventually consume half the cracker’s nameplate
capacity. However, the vertical integration of the Teesside chemicals industry, which made it highly
efficient during the good times, is now faltering.
Orders are expected to be erratic as customers remain cautious amid the gloomy economy, which is likely
to translate into lower utilisation rates. Well-capitalised companies are the best positioned to withstand
this period of unpredictability, while those with high levels of debts could potentially face the threat of
bankruptcy or become acquisition targets. The rest of the petrochemicals industry is facing the same
challenges, but the outlook for UK producers is particularly grim as the UK does not appear to making
much headway in jumpstarting its economy. We have revised down our UK real GDP forecast for 2009
from -3.5% to -4.2%, and have left our 2010 forecast at 0.0%. The dire Q109 numbers have been a major
driver behind our revisions, and we also note the ongoing increase in the volatility of real GDP growth.
Manufacturing will be hardest hit, while the construction industry will contract markedly with the
collapse of the housing market. We believe it will take until 2012 for the UK to post above-trend growth
of 3.0%. The strongly pro-cyclical nature of the UK petrochemicals industry means that it could post a
fall of 8-10% in production volumes in 2009.

Executive Summary .5
SWOT Analysis....7
United Kingdom Political SWOT....7
United Kingdom Economic SWOT..7
Global Market Overview8
Global Ethylene Capacities ..8
Table: World Ethylene Production By Country, 2008 And 2013 (‘000 tonnes capacity) .8
Polypropylene.11
Global Oil Products Market Review..14
Table Global Oil Prices, 2003-2013 (US$ per barrel)18
European Overview19
Regulation..19
Table: Key Elements Of REACH...20
Production .21
UK Market Overview....22
Market Structure..23
Competitive Landscape..24
Petrochemicals Business Environment...26
Table: Western Europe Petrochemicals Business Environment Ratings....26
Limits Of Potential Returns.26
Risks To Realisation Of Returns ...27
Industry Trends And Developments ...28
Financial Results And Developments.28
Refining 31
Declining Reserves ...32
Mergers And Acquisitions...33
Industry Forecast Scenario ...36
Table: The UK’s Oil And Gas And Petrochemicals Sector, 2004-2013 (tonnes, unless otherwise stated) ...36
Special Economic Report – Britain On The Brink..37
Table: The UK’s GDP Per Capita, 2000-2013 (US$).40
Table: Top 25 Countries – GDP Per Capita, 2007, 2010 And 2013 (US$)42
Table: BMI’s Short-Term Economic Risk Ratings, 2002-2009 ...45
Company Monitor...48
BP....48
ExxonMobil Chemical....50
Shell Chemicals UK..51
Ineos 53
Country Snapshot: UK Demographic Data...54
Section 1: Population54
Table: Demographic Indicators, 2005-203054
Table: Rural/Urban Breakdown, 2005-2030 ....55
Section 2: Education And Healthcare55
Table: Education, 2002-2005 ..55
Table: Vital Statistics, 2005-2030.55
Section 3: Labour Market And Spending Power ....56
Table: Employment Indicators, 2000-2005..56
Table: Consumer Expenditure, 2000-2011 (US$) ..56
Table: Average Annual Wages, 2000-2012..57
BMI Methodology ...58
How We Generate Our Industry Forecasts ..58
Chemicals And Petrochemicals Industry 58
Cross Checks ..59
Business Environment Ratings.60
Table: Petrochemicals Business Environment Indicators And Rationale...60
Weighting...61
Table: Weighting Of Indicators ....61