Ratcliffe: Ineos shifting capital to US, rationalizing in Europe

23:29 PM | April 1, 2013 | —Clay Boswell in San Antonio

Ratcliffe: Looking to increase access to cheap US feeds.

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

Ratcliffe made his remarks at American Fuel and Petrochemical Manufacturers’ (AFPM) 2013 International Petrochemical Conference at San Antonio, 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 said.

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

Europe is a “different story,” Ratcliffe said. “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 was earned in the United States. 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,” he said.

“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 added. “And there will have to be some rationalization in there.”

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.

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 observed.

“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 said. Fifteen years ago, manufacturing in both the United Kingdom and Germany accounted for about 25% of GDP. Today, manufacturing still accounts for about a quarter of the German economy, but in the United Kingdom, the contribution has fallen to only 10% or so, he noted. “The government was not particularly interested in manufacturing,” Ratcliffe said. “They were much more focused on financial services. They thought that financial services was the future.”

Ratcliffe said that the United Kingdom is no longer attractive to manufacturers. “Why would someone want to manufacture in the UK?” he asked. “Taxes are relatively high, the pensions are high, and energy is extremely expensive.”

Germany’s economy remains strong despite eurozone turmoil because it has maintained a strong manufacturing base, said Ratcliffe. “I would encourage you to keep on manufacturing.”