AFPM IPC: Ineos shifting resources to US: Ratcliffe

01:51 AM | March 25, 2013 | Clay Boswell

Ineos will increasingly direct capital investment to the United States, attracted by low feedstock and energy costs, says Jim Ratcliffe, chairman of the Switzerland-based chemical giant. The US already contributes more than half of the company’s profits, he says, and its share will grow.

Ratcliffe made his remarks at American Fuel and Petrochemical Manufacturers' (AFPM) 2013 International Petrochemical Conference in San Antonio, TX, where he was presented with the 17th Petrochemical Heritage Award by the Chemical Heritage Foundation and the Founders Club.

“We spend about $700 million a year on capital [investment], and we’re going to see that gravitate in the direction of the United States,” he says.

Ineos already has in the US one of the largest US ethane crackers, he notes. Adding ethylene and derivatives capacity in the US would increase the company’s access to North America’s shale-advantaged feedstocks and energy.

Europe is a “different story,” says Ratcliffe. “Europe remains a difficult place. It hasn’t recovered yet from its crisis…. Countries won’t vote for the things they need to get their economies back in shape. Our view… is that we have a long-term issue in Europe.”

Ratcliffe estimates that after the $9 billion acquisition of Innovene from BP in 2005, about 25% of Ineos’s profits were earned in the US. The balance was earned mostly in Europe, but business conditions have deteriorated significantly since then. “Now over 50% of profits come from the United States, and I think that trend will continue,” Ratcliffe says.

Ineos has roughly 27 million m.t./year of production capacity in Europe, versus about 12 million m.t./year in the United States, according to data from IHS Chemical.

The company will have to adapt. “I think, from an Ineos point of view, we’ll look at whether we can underpin any of our assets in Europe with cheap feedstocks in one form or another from the United States,” he adds. “And there will have to be some rationalization in there.”

Ratcliffe is pessimistic about the prospect for economic recovery in much of Europe. Countries that have maintained their manufacturing base are in much better condition than those where it has been neglected, he observes.

“It’s really quite depressing what we’ve seen in the UK, where manufacturing has gone quite significantly in the other direction -- it’s collapsed in the UK,” he says.

Fifteen years ago, manufacturing in both the UK and Germany accounted for about 25% of GDP. Today, manufacturing still accounts for about a quarter of the German economy, but in the UK, the contribution has fallen to only 10% or so, he notes. 

“It did that because the government was not particularly interested in manufacturing,” Ratcliffe says. “They were much more focused on financial services. They thought that financial services was the future.”

Ratcliffe says that the UK is no longer an attractive location for manufacturing. “Why would someone want to manufacture in the UK?” he asks. “Taxes are relatively high, the pensions are high, and energy is extremely expensive.”

Germany’s economy remains strong despite the turmoil in the eurozone because it has maintained a strong manufacturing base, says Ratcliffe. “I am a very firm believer that an economy must have a strong manufacturing base to be successful…. I would encourage you to keep on manufacturing.”