Uncertain prospects stall chemicals cash

The recent growth of capital spending in the UK by the chemical industry is expected to stall this year at £2,350 million, a rise of only 2.3%. This compares with a rise last year of 14% in real terms to £2,490 million, says the Chemical Industries Association.

Output was up by 1.8% in the first half of 1996. The second half is expected to prove stronger.

As the chemical industry looks at moving into China and India, the modest outlook for investment is hardly surprising, especially when balanced with uncertainty over the future strength of the western European market. Fears are not helped by EU plans for a new carbon tax.

This uncertainty is reflected in forecasts for 1998, which show a dip in intended investment. Total spending planned for 1996-98 is £7,030 million.

According to the CIA, the biggest spending regions in the UK will be the north east of England and Humberside, followed by the north west and the Midlands. There is expected to be a drift away from the south east and East Anglia, forecast to represent just 18% of total investment in 1996-1998.

One area worth watching is Grangemouth, in Falkirk, Scotland. This is because of a government decision to allow the new gas pipeline from the Elgin, Franklin and Shearwater fields in the North Sea – in a project between Shell, Elf and BP – to land at Bacton on the north Norfolk coast. The condensate part of the liquid feedstock will be exported from Bacton to BP Chemicals’ Grangemouth site via an existing pipe.

The confirmation of feedstock supplies for Grangemouth means BP Chemicals’ £500 million expansion on the site will go ahead. This could include expanding its ethylene and polypropylene capacity, and the creation of up to 250 jobs.

Although investment should rise only slowly this year, the early 1990s’ investment famine at the basic end of the industry is well and truly over. In particular, the share taken by petrochemicals is set to rise from 15% of the total in 1995 to 21% in 1996-98, though this is still well below the peak of 1989-91.

Europe generally is looking forward to a strong performance this year, says the European chemical industry council, Cefic. Higher exports and stockbuilding will boost chemicals output by more than 3%, compared with a 1.2% increase last year. But investment in chemicals production will be down 2-3% this year, compared with 1996.

Demand for chemicals should rise by a similar percentage across Europe.

Anthony Gould