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April 27, 2020

Demand from end-use sectors likely to dent growth of petrochemical industry in Europe

By GlobalData Energy

Europe has become the worst affected region globally as of the first week of April 2020, with Spain and Italy particularly hit hard by the Covid-19 pandemic.

European countries account for around 44% of global Covid-19 cases since the first confirmed case reported in France in the last week of January. The region is further contending with the rapid surge in cases and associated deaths. The rate of Covid-19 transmission in the region is higher, and stringent measures are carried out accordingly by governments to contain the spread.

The pandemic has forced the companies to re-evaluate the investment on new projects, which may alter their FID plans. Investment in new projects is expected to slow down, as companies such as INEOS and LyondellBasell have announced capex cuts for 2020, in lieu of high uncertainty due to Covid-19. Other European companies are expected to follow suit, slowing down the investment wave further. The European petrochemical majors would be in wait and watch mode, as they are uncertain about the further disruptions that may arise in the near future, eventually having an effect on new investment plans.

The latest economic growth forecast suggests that the growth of key European countries is set to rebound sharply after experiencing a dip in 2020 due to Covid-19 outbreak, amid higher uncertainty. An immediate recovery is foreseen in 2021, as governments would undertake quality measures to bring economies back on track. Petrochemicals demand is a function of macroeconomic growth, and hence has strong correlation to GDP growth. Therefore, the region’s economic outlook is expected to dampen petrochemical demand growth in the short term.

Regional economic slowdown coupled with lower demand for single-use plastics driven by stricter regulations and increasing environmental sensitivity, is expected to hit plastics demand growth hard in 2020.

Due to the Covid-19 outbreak, the region’s petrochemical demand from key end-use sectors such as automotive and construction have lowered. Additionally, supply disruptions and workforce shortages in these industries have elevated the challenges further.

However, demand from the packaging sector would help the industry in its survival. The demand of key polymers in the major European countries is expected to decrease by around 5%-6% in 2020 and is set to rebound in 2021.

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