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Boston, MA -- (SBWire) -- 09/03/2013 --Confidence in the future of the British chemicals industry is declining with BMI anticipating that an ongoing slump in demand will lead to diminishing capacity over the long term. Plant closures have been announced in segments that are exposed to the construction market, particularly where capacity is inefficient and costly to run compared to new capacities in the Middle East and Asia.

The Chemicals Industries Association (CIA) said in May that 44% of companies responding to its latest survey had seen lower sales volumes and only a 22% increase in the previous six months. Looking forward, on balance companies saw rising sales but by a smaller margin than when the CIA conducted its previous survey three months ago: the proportion expecting volumes to rise fell from 46% to 39%. Declining confidence is testament to the trouble the sector is in and the trend is to the downside as domestic demand continues its fall.

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Total has indicated that it is closing the UK's last polystyrene (PS) facility with 70,000tpa set to shutter, a move that is bound to have a knock-on effect on styrene monomer demand. Ineos is also closing a 105,000tpa polyvinyl chloride (PVC) unit at Runcorn, focusing all UK PVC production at its Newton Aycliffe site. It is also reconfiguring its Runcorn vinyl chloride monomer (VCM) plant to produce ethylene dichloride (EDC) for internal use, according to reports in early 2013.

BMI has revised the following forecasts/views:

- British industrial growth will remain modest in 2013 at 2%, unchanged from the previous year. Meagre growth rates will continue over the medium term. This will continue to depress chemicals consumption and therefore output rates. Additionally, the lacklustre performance of export markets will provide no help to the sector. The decline in the value of the euro militated against a recovery of the British chemicals industry in 2012, in spite of competitive advantages and efficiencies to be gained in some segments, although exchange rates should stabilise in 2013. As a result, BMI estimates that British chemicals output will decline 3.9% y-o-y in 2013, following a 5.7% fall in 2012, indicating that the industry is far from recovery and could decline further. This is a change from the recovery forecast in the previous quarter.
- In terms of end-markets within the UK, BMI believes the automotive industry is set to contract over the medium term following strong growth in 2012, which will affect some engineering plastics, particularly in the PP segment. Meanwhile, the construction industry will remain in a trough following a sharp decline in 2012, depressing PVC consumption. Demand for chemical fertiliser is also to witness little growth over the medium term.

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