Covid-19 has impacted Ineos’ European and North American business as petrochemical demand suffers

GlobalData Energy 9 November 2020 (Last Updated November 9th, 2020 12:19)

Covid-19 has impacted Ineos’ European and North American business as petrochemical demand suffers

Ineos Ltd, a major player in the global petrochemicals market, has seen its results hit in the first half of the year as global demand for petrochemicals has been hit by Covid-19. The pandemic is expected to have the most significant impact on petrochemicals demand across Europe and North America, regions where the economic shock of the pandemic have been particularly severe. Ineos Ltd operates its petrochemical assets primarily through Ineos Group Holdings S.A. (Ineos Group). Even assisted by lower feedstock prices the subsidiary has seen its O&P (Olefins and Polymers) business weaken as the pandemic stifles global demand, despite sectors such as packaging, medical, and food showing strong demand. Their European segment has been the hardest hit in the first half of the year relative to their financial performance in 2019, where historically is has been the region that generates the greatest portion of the company’s annual revenue.

Ineos Group’s quarterly EBITDA values were down across all segments year-on-year. Currently over three quarters of Ineos’ base petrochemical capacity is located in Europe, with the remaining in North America. As such, the European business suffered the greatest drop in EBITDA performance with H1 2020 values half that of last year. While North American earnings didn’t fare much better, the breakdown shows that the first two quarters of this year saw a consistent decline in North America’s EBITDA, while Europe had a relatively stronger year-on-year Q1 but saw a 70% drop in Q2. With the recent announcement of second lockdowns across Europe, their H2 performance may continue to fall. Weakness from their European operations were primarily due to the olefins business suffering reduced demand.

Chemical intermediates strong performance in H1 2020 relative to the O&P segments has helped alleviate some of the downward economic pressure from Covid-19. This was partly due to an increase in their Oxide business sales volumes in Q2 relative to the previous year as the effects of the pandemic was offset by an increase of specialised products in the cleaning and surfactant sectors, although revenue was still down due to depressed prices. Margins for chemical intermediates were assisted by falling feedstock prices, which in some circumstances, such as glycol, allowed them to be competitive outside of Europe where prices for feedstock have typically been lower. For acrylonitrile the feedstock prices fell quicker than selling prices, further helping the segment show some resistance to the overall drop in demand due to Covid-19.

Future performance for the company relies on a rebound in petrochemical demand which is forecast to occur next year. Furthermore, in June this year, Ineos Ltd announced their intention to acquire BP’s global aromatics & acetyls business via their Ineos Styrolution subsidiary for $5bn, increasing their global exposure to capture a recovery in demand. The deal includes 15 sites and is expected to be completed by the end of the year. The acquisition will increase their North American petrochemical production capacity by just over 75% but European petrochemical operations will retain the lion’s share of the company’s capacity.