Basic Chemicals and Europe: Mutually Exclusive?

Greater political uncertainty in Europe adds to a plate full of challenges for the European Chemical Industry, especially in energy-intensive basic chemicals. Political stagnation may ease some pressures but boost others.
Protectionism will likely drive higher tariffs in Europe, but with little political will to help dirty industry (that may change), tariffs may not help chemicals enough. A collapse in oil prices would ease some pressure.
However, the world continues to build new chemical capacity, adding lower-cost production than in Europe, and European capacity will inevitably need to close. We highlight a possible legal constraint to consolidation.
China is becoming more competitive as local industry presses forward faster than in Europe and the US, driving faster experience curve progress and greater economies of scale – protectionist tariffs must reflect this edge.
Otherwise, we look at messages from Westlake and OMV at recent investor updates, some schizophrenia at the IEA with energy supply projections, and the longer-term risks of short-term moves to curb Chinese imports.

Exhibit 1: Europe’s competitive disadvantage is off its highs in ethylene but still well above a 20 or 30-year average.