French Strike Causes Chaos - A Petrochemical Perspective

French workers are fuming about employment law reforms in the El Khomri bill. The socialist government is confident that this bill will make the country’s strict employment laws more flexible, thus encouraging more employment. There are two major outcomes anticipated from this legislation that would allow companies to:

1.  Negotiate the 35 hour maximum working week

2.  Cap severance payments if they need to shed staff (in case of financial turmoil)

According to the socialist government, these reforms are expected to encourage firms to take on more staff and help reduce the country’s unemployment rate, currently lingering at around 10%. Workers think otherwise and say that the legislation would worsen their situation and undermine their hard won privileges and rights.  Strikes have been ongoing since May 18, and the unions are both trying to work around this issue and airing other grievances. These strikes have impacted a number of industries already.  This post addresses the impact on the petrochemical industry.

Over the last few weeks, the impact on the petrochemicals industry has grown due to production problems from walkouts and transport issues. The strikes intensified on May 26, which resulted in major blocks across ports and fuel stations. The nuclear power stations also faced the brunt of the strikes as nearly 16 out of the 19 stations were impacted. Though half of the 8 refineries are still running, most of the downstream derivative units have announced force majeure, citing labor issues.

Two of the biggest producers, INEOS and Total, have announced force majeure on both PE and PP from their sites in France. Total has completely shut all of its units at Gonfreville, including its downstream polypropylene, polyethylene, styrene and ortho-xylene units. The circumstances are similar for Ineos, where both its PE and PP units at Sarralbe have been shut for weeks.  However, these shut downs aren’t expected to push up the prices of PE and PP immediately as most of the buyers have managed to get alternatives from other producers such as LyondellBasell, whose PE and PP units in Aubette are still up and running, as well as from Exxon, whose PE and PP units have been running at marginally higher rates due to a surge in demand. Polychim and Versalis have also managed to keep their polymer plants running thus far and any supply concerns from these sites would be due to transport issues. No major impact is expected in the short term; but, if the strikes continue through June, there is a high possibility that the market will fall short by the end of Q2 and prices will surge significantly. Moreover, the oil market has been bullish over the last few weeks with prices breaching the USD 51/Barrel, for the first time several months.

In other countries, strikes more often than not follow failed negotiations. In France, they precede talks as a way for the unions to show dominance. The ongoing strikes have the people of France divided: half the population currently supports the El Khomri bill and the other half are against it. Only time will tell who has a bigger say in the market – Unions or the Government.

Energy & Utilities

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