Petrochemical Sector- Global Scenario

Petrochemicals are chemical products that are derived either from crude oil or from natural gas, but that are not used for fuel or fertilizer. The three main petrochemicals produced by a steam cracker are ethylene, propylene and benzene. The feedstock pattern for all these petrochemicals varies from one country to another. In the US and the Middle East, ethane (derived from natural gas) is the prime feedstock for the production of commodity plastics, while in Japan, Western Europe and even in emerging Asia, the feedstock is predominantly naphtha. The use of a particular feedstock is governed by its availability in a region and the economics of obtaining it

"Petrochemicals are chemical products that are derived either from crude oil or from natural gas"

The petrochemical industry is the largest segment within the US$1,600 billion global chemicals industry, of which it has a share of around 40%. Within the petrochemical industry, commodity polymers account for 55% of the consumption (in terms of volume) of basic petrochemicals.

The industry worldwide is dominated by two kinds of players: oil & gas companies who have integrated forward to extract chemicals from their products; and chemical companies, which have a presence in a variety of chemicals, including commodity plastics.

Globally, the petrochemicals industry exhibits significant cyclicality. This cyclicality is caused by economic cycles and the tendency to attract over-investment during the high profitability scenario which, because of the long gestation period and capacity additions in lumps, subsequently creates an oversupply position causing the margins to decline significantly. Further the entire global petrochemical markets are fragmented.

" two kinds of players: oil & gas companies  and chemical companies"

The three markets of North America, Western Europe and Japan account for the largest consumption of petrochemicals. With a cumulative share of over 55% of the overall consumption of commodity plastics, these regions are, however, mature. The growth in consumption is thus, shifting to Asian and Latin American regions.

Currently, the industry is in a trough, with most polymers facing significant overcapacity.

When looking at the global industry, the annual average growth in demand has been 3.5% while the growth in supply has been 5.1%.

Excess supply will continue until 2005, especially in Polyethylene. In European petrochemical industry, the key objective behind much of the recent and current restructuring is Integration. It is seen as contributor to lower costs and greater efficiencies.

China is the world’s largest importer of petrochemicals. Its entry to the World Trade Organization is expected to encourage economic activity resulting in higher imports of petrochemicals. However, the capacity expansions are already planned in China. Global players such as Dow Chemical, BASF, Shell Chemicals and the Formosa Plastics Group have plans to build large-scale petrochemical complexes in China. All these developments fuel up on the ever increasing supply-demand gap.