Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Chemical companies are putting European assets up for sale as they review their operations in the region to cope with high energy prices and competition from newer plants in Asia and the Middle East.
Saudi Arabian chemicals group Sabic is working with bankers to explore options including a sale of its European petrochemicals business, according to people familiar with the matter. Dow, LyondellBasell, Shell and BP have also signalled they are weighing options for assets in the region.
The deliberations come as energy costs in Europe remain high following Russia’s invasion of Ukraine in 2022, and as the industry builds newer plants in other regions. This has intensified pressure on the chemicals sector, which represents about 5-7 per cent of Europe’s manufacturing revenues and employs more than 1.2mn people.
“There’s a lot of additional supply planned in geographies such as China and the Middle East. Some management teams are looking at older European assets and thinking ‘we are not so sure we can compete’,” said Sebastian Bray, head of chemicals research at investment bank Berenberg.
“What was the decisive factor that made companies consider an exit from their assets? It was higher energy costs,” Bray added.
The European Chemical Industry Council warned in January that more than 11mn tonnes of capacity had been scheduled for closure in the region in the past two years, affecting 21 major sites.
It added that with gas prices four to five times higher than in the US, the competitiveness of the sector “is under pressure”, and called for urgent action from EU policymakers.
Sabic, which was established by the Saudi government and is majority owned by state oil group Saudi Aramco, is working with bankers at Lazard and Goldman Sachs on its process.
Its petrochemical assets in Europe generate roughly $3bn of revenues and about $250mn of earnings before interest, taxes, depreciation and amortisation annually, the people familiar with the matter added. They cautioned that no final decision had been taken.
Sabic did not respond to requests for comment. Lazard and Goldman declined to comment.
Dow said in October that it would run a strategic review of some assets in the region, a move that came after Houston-based LyondellBasell announced the launch of its own strategic review for European assets last May.
“Europe’s regulatory environment has led to increasing challenges across many sectors and value chains,” Dow chief executive and chair Jim Fitterling said at the company’s third-quarter results. “We are announcing a strategic review of select assets in Europe, primarily those in our Polyurethanes business.”
Sir Jim Ratcliffe, the billionaire owner of petrochemicals group Ineos, has consistently warned that Britain’s chemical industry is heading for extinction because of high energy prices and carbon taxes.
“We are witnessing the extinction of one of our major industries as chemical manufacture has the life squeezed out of it,” he said in January. Last week, he called for the UK to “rethink” the taxes.
Ineos in March sold its composites business, which provides resins and coatings to make plastics, for €1.7bn to KPS Capital Partners. The business had 17 sites across Europe, North and South America, Asia and the Middle East.
In a sign of European chemicals companies trying to secure cheaper and less volatile supplies of gas, Ineos last week said it had signed an eight-year supply agreement with fellow chemicals company Covestro for US gas.
“A lot of people are looking at where things are and saying we’ve got some inefficient plants in Europe or isolated plants and they’re trying to find a home for those,” said Alasdair Nisbet, chief executive of chemicals advisory firm Natrium Capital. “You’re seeing a rethinking of what is competitive.”
Read the full article here
