A large North American oil, petrochemicals and plastics group wants to take over another major plastics player. Okay, nothing new. But with the current situation in the global polyethylene business, it is nevertheless surprising. The level of concentration on the North American PE market is already very high. Three quarters of total capacities are in the hands of five groups and, following a possible merger of Chevron Phillips Chemical and Nova, there would only be four players (see Plasteurope.com of 24.06.2019).

As far as the costs for the ethylene feedstock are concerned, the North American companies are among the global leaders these days. Shale gas has put it on a par with the Arab region. In parallel, PE production in the US and Canada is being expanded, and the first material from there has already reached Europe. If the market laws of supply and demand were to apply in their pure form, PE prices in the US should be among the lowest in the world.

No dice – US prices for the downstream product polyethylene have, since the global PE crisis in 2015, constantly been the highest on a worldwide comparison with Europe or Asia. The margins obtained by the companies in the US business can be described as nothing short of "fantastic". That may also have something to do with market forces, and this assumption persists in view of the facts.

US producers seem to have made it their intention to make the world a happy place with its new, cheap material. Especially in Europe, this is leading to ever increasing pressure on local producers, who are quite simply no longer able to compete. After all, many converters are naturally opting for the cheaper offers whenever possible. The consequence is that since 2015, Europe has been a net importer of PE after having previously been one of the main exporters over a period of several decades.

It is now high time to look at the dangers lurking here. European processors will very likely be downgraded according to the customer hierarchy from A to B – simply because of the hunger for more material by the disproportionately larger Asian markets, and supported by the complicated logistics due to the distances involved. In future, they will only supply if the price is right. This logic will certainly come to the fore in tense situations. Spring 2015 provided a preliminary taste of this.

It will then not only be the supplies from the Middle East that are controlled by a small number of players, but especially also those from North America. Three of the (currently) five top PE players in the US are, by the way, heirs of Standard Oil, which was broken up in 1905 for cartel reasons and made dynasty Rockefeller so famously rich back in the 19th century. There would thus certainly be plenty of tradition for such developments.

European converters should urgently look around for alternative sources of material. Here, eyes could quickly fall on a raw material that is abundantly available in Europe. Far from being a problem, post-consumer plastics should be regarded not as waste but as a resource. If it were possible to increase the proportion of recyclate in new plastic products from its present 3% to just 15%, European processors would be able to call on adequate reserves and be able to strategically master the challenges of the feedstock world.

In 2017, German chancellor Angela Merkel responded to the unreasonable remarks by the then new US president Donald Trump with some surprising words: "We Europeans really must take our fate into our own hands." So when will the plastics industry start the process?

Daniel Stricker
Head of Market Research at Plasteurope.com