UK’s New Labour Government Brings Positivity in LAO and Other Petrochemicals Industry

Immingham (UK)- With the UK’s Labour government arriving on the scene, INEOS officials as well as operational creditors had bullish sentiment regarding the LAO market for NW Europe as talks of reviving INEOS Grangemouth refinery being back on the table.  Linear Alpha Olefins (LAO) produced through ethylene are one of the major products of Grangemouth INEOS operations which have been affected due to rising costs and weak demand. In the last month of Q2 2024, the prices of LAO at Immingham port on Free Delivery basis were observed at USD 1090/MT.

LAO prices in the UK, as well as Northwest Europe, currently have largely been guided by two trends- US FOB Gulf deliveries and FD Rotterdam outbound deliveries. Financial guidance of Shell’s operations in the Netherlands shows that LAO markets have largely remained bearish in Europe since April 2024 largely owing to weakness in ethylene prices throughout Europe. A price drop of 34% cumulatively from March 2024 to June 2024 was observed in LAO C10 grade, which has major applications in preparing lubricants, and group IV base stocks. INEOS’s LAO output surged through Grangemouth operations in June. Inquiries with a market participant belonging to the Netherlands revealed that suppliers have been increasing the cracker operating as well as downstream inventories by converting high volumes of Naphtha to downstream base oil stocks as well as cosmetics and homecare applications.

Linear Alkyl Benzene- a downstream produced from C14/16 grade of LAO remained consistently stable for the past two months as consumer insights as well as inflation datasuggest a recovery in H2 for personal consumption in Europe is expected to surge. One market participant revealed that high stocks of LAO exist in European inventories and the present state of production through LAO in Europe is being ‘forwarded’ in June as Naphtha as well as crude prices have stayed higher for longer duration since April 2024. The cost escalation adjusted for inflation shows that prices though fallen to pre-pandemic levels for C16 and C14 LAO deliveries, spread margins have reached historic lows. 

Europe’s major petrochemical companies have been facing severe distress regarding high financing costs and competition from US LAO and other polyolefins exports. This challenge has previously forced INEOS Grangemouth to wrap up refinery as well as olefins operations by Q1 2025. The UK Labour government’s mandate to support domestic manufacturing incentivize revival of distressed units of petrochemicals across UK. Grangemouth plant, belonging to INEOS, runs both jointly the refinery operations as well as petrochemical O&P production, was on the verge of closure as FOB US Gulf LAO prices remained highly competitive due to gas pricing of USD 3/MMBtu while UK imports from Norway as well as US at USD 9.2/MMBtu.

With the UK’s new government’s focus on increasing competitiveness, LAO producers in Europe are hopeful, and recovery in prices is forecasted by ChemAnalyst analysis. The market and price dynamics of LAO are subjected to rely upon the inventories and the smooth operational activities occurring in the regional market.