THE UK chemicals sector is on a trajectory of “steady decline” according to a new report published by the Chemical Industries Association (CIA) earlier this week.
The report, produced by consultancy S&P Global, said the UK industry was in a particularly vulnerable position and is “drifting towards the most unfavourable scenario” of higher costs and lower demand growth.
The report says the UK has been particularly hard-hit because of high energy costs. The report also says that the chemicals sector is likely to remain highly dependent on increasingly expensive fossil fuels up to 2050.
The report also says that Brexit and an “unfavourable” immigration policy have created a “conundrum of workforce-related issues”. Brexit has cost the UK chemicals sector at least £2bn (US$2.5bn), according to a Defra impact assessment. This cost was mostly incurred in the establishment of new regulatory frameworks resulting from the UK’s withdrawal from the EU’s REACH scheme.
The CIA called for better access to feedstock and energy markets, scaled-up battery production, carbon capture and recycling technology, and increased availability of skilled technicians and engineers.
Paul Greenwood, ExxonMobil’s UK lead, said that the report was a “stark reminder of what is at risk if we do not act now. The chemicals sector has long been a cornerstone of the UK economy, but without action to ensure a competitive and level playing field, we will lose out to other nations.
“Collaboration between government and industry is essential to create an environment that optimises cost to operate, supports investment, and delivers solutions needed to achieve net zero ambitions.”
A government spokesperson said: “We are backing our strong chemicals industry, which exported nearly £32bn last year and is a crucial part of delivering a fairer, greener future and meeting our 2050 net zero target. It will play a key role in delivering our plan for change with investment and reform to deliver growth and more money in people’s pockets.
“Our industrial strategy will also focus on the key sector of advanced manufacturing, offering certainty and stability to companies, boosting our competitiveness, and unlocking investments in the industry.”
The UK chemical industry’s 2022 turnover was £70bn (US$87.3bn), accounting for 1.2% of the country’s total GDP and falling just outside of the global top ten – higher than any other country in Europe. The industry accounted for 15% of UK exports, making it the country’s second largest export sector.
Despite this, the CIA report said that “the UK chemical industry has been in steady decline based on key indicators such as assets, consolidation, closures, and R&D spend”. The report also comes shortly after Ineos chairman Sir Jim Ratcliffe warned the sector faced “extinction” in the UK.
However, the CIA report said that the industry globally was at a “trough”, with weaknesses felt particularly in Europe and Asia where ethylene margins have been virtually zero. This contrasts to the US where ethylene margins are still “acceptable”, owing to the US’s access to relatively cheap ethane as a feedstock for ethylene. Europe and Asia use the more expensive naphtha.
Ethylene markets are also impacted by overcapacity in China and the Middle East, where the CIA predicts ethylene production capacity will grow faster than demand.
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