Europe's Chemical Sector: Low production costs and healthy profits challenged by global demand and US competition

Europe's chemical industry is in overall good shape. A 10% operating margin rate is expected in 2016. This explains the "low" sector risk rating attributed by Euler Hermes across Europe, despite uneven trends in production volumes

However, performance relies on cheap feedstock prices. The -60% plunge in the naphtha price since 2013 helped counterbalance flat revenues

High dependency on global demand poses a challenge. Brexit-related uncertainties and weak international trade should continue to be a drag on production growth rate. It is forecast to reach +1.3% in 2016 and +1.1% in 2017

In the long run, American competition shapes expectations and risks. US upstream chemical companies are still fueled by the shale gas windfall. This provides a competitive advantage to Americans thanks to the low production costs of the all-important ethylene. By the next decade upstream US players are poised to reap the benefits of important investments in new plants n European players should focus on investment in innovative chemical activities downstream where they can generate higher added value and set themselves apart from competition