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Europe’s chemical industry should expect and pursue further consolidation as the region’s current high-cost environment makes investing in basic chemicals an unattractive option, according to Rainer Seele, president/global chemicals at XRG PJSC (Abu Dhabi), chairman of Covestro AG’s supervisory board and member of Borouge Group International’s (Vienna) supervisory board.
Consolidation is already happening in Europe’s chemical sector due to the high cost of production, and it is expected to continue, Seele said in a presentation Sept. 15 at the European Association of Chemical Distributors (FECC) Annual Congress in Vienna.
The European chemical sector should see consolidation as an “opportunity” and not a “risk,” he said, adding that merger synergies available to European chemicals companies substantially surpass the savings achievable through organic cost reduction programs.
XRG is the investment arm of Abu Dhabi National Oil Co. (Adnoc). XRG owns Covestro and is an equal joint venture partner with OMV AG in the polyolefins producer Borouge.
Europe’s investment unattractiveness
Europe’s high energy costs make investments in energy-intensive industries such as chemicals unattractive, Seele said. Investing in new crackers in Europe is not something investors such as XRG would consider, he added.
The US is the region that will benefit the most from Europe’s unattractiveness, as it offers cost-competitive feedstock, energy and tax rates, Seele said. US-based chemical companies are expected to minimize European asset exposure and serve European demand from domestic production, he noted.
As a result, Europe should look to optimize the assets in which the chemical sector has already invested so that production capacities in the region are able to supply European demand, Seele said.
Meanwhile, to restore its immediate competitiveness, Europe must minimize energy and labor costs, as well as reduce feedstock import costs, and eliminate emit-related charges, including the immediate allocation of free CO2 certificates to the sector, he said.
Innovation, specialty chemicals
Investing in innovation is worthwhile in the long term, Seele said. However, if companies are unable to manage their costs efficiently they might not be able to capitalize on their innovation investments, because innovation takes a long time, Seele noted.
Specialty chemicals represent the clearest prolonged development path to the European chemical sector, he said. European specialty chemical companies have delivered materially stronger recent quarterly results relative to their base chemicals peers, he added.
“I have my doubts investing into base chemicals in Europe, [however] I have a good appetite to look into specialties,” Seele said.
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