Chemicals

HOUSTON (ICIS)–Global average rates for shipping containers rose for the first time since January, workers at freight rail carriers Canadian National (CN) and Canadian Pacific Kansas City (CPKC) have voted in favor of a strike, and the US regulator that oversees railroads finalized a rule allowing reciprocal switching, highlighting this week’s logistics roundup. CONTAINER RATES Shipping container rates have been rising steadily since December when attacks by Houthi rebels on commercial vessels in the Red Sea forced carriers to take the longer route around the tip of the African continent before leveling off last week. This week, the global average for 40-foot shipping containers rose by 1%, according to supply chain advisors Drewry and as shown in the following chart. Rates from Shanghai to the US East Coast edged slightly higher, but rates from China to the West Coast edged slightly lower, as shown in the following chart. Judah Levine, head of research at online freight shipping marketplace and platform provider Freightos, said that the overall container market has settled into a new routine that avoids the Red Sea. “Though significant backlogs, congestion and equipment shortages seen during the first few weeks of the crisis have dissipated, adjustments have resulted in some moderate but ongoing disruptions,” Levine said in a weekly update. He said that even after falling drastically since the beginning of the year, prices remain well above normal and are likely to increase relative to this new floor as demand is set to increase for peak season. Container ships and costs for shipping containers are relevant to the chemical industry because while most chemicals are liquids and are shipped in tankers, container ships transport polymers, such as polyethylene (PE) and polypropylene (PP), are shipped in pellets. They also transport liquid chemicals in isotanks. LIQUID CHEMICAL TANKERS US liquid chemical tanker freight rates assessed by ICIS were unchanged this week. From the US Gulf (USG) to Asia, the market has been quieter this week as a holiday-shortened week has sidelined some key players. There have been only a few parcels quoted, which is placing downward pressure on freight rates for smaller lots. Larger base cargoes of monoethylene glycol (MEG), methyl tertiary butyl ether (MTBE), and methanol have been popular chemicals on this route, keeping larger freight rates steady. From the USG to India, the market has been very quiet. PORT OF BALTIMORE Since the opening of a fourth channel into the Port of Baltimore, 171 commercial vessels have transited the waterway, including five of the vessels that were trapped inside the port after the containership Dali struck the Key Bridge, causing it to collapse, according to the Unified Command (UC). The MSC Passion III entered the port on 29 April, according to vesselfinder.com, making it the first container ship to enter the port since the accident. The closing of the port did not have a significant impact on the chemicals industry as chemicals make up only about 4% of total tonnage that moves through the port, according to data from the American Chemistry Council (ACC). The ACC said less than 1% of all chemicals involved in waterborne commerce, both domestic and trade volumes, pass through Baltimore. But a market participant in Ohio told ICIS previously that it is seeing delays in delivery times for imports as vessels originally destined to offload in Baltimore are getting re-routed to other ports. PANAMA CANAL Wait times for non-booked vessels ready for transit edged for higher both directions this week, according to the Panama Canal Authority (PCA) vessel tracker and as shown in the following image. Wait times a week ago were 2.5 days for northbound traffic and 5.6 for southbound traffic. The PCA will increase the number of slots available for Panamax vessels to transit the waterway beginning 16 May and will add another slot for Neopanamax vessels on 1 June based on the present and projected water levels in Gatun Lake. RAILROADS Workers at freight rail carriers Canadian National (CN) and Canadian Pacific Kansas City (CPKC) have voted in favor of a strike. A first work stoppage could occur as early as 22 May, if no new collective agreements are reached by then, officials at labor union Teamsters Canada Rail Conference (TCRC) said in a televised announcement on 1 May. The rail carriers warned that a work stoppage would disrupt supply chains throughout North America and constrain trade between Canada and the US and Mexico. The two railroads account for the bulk of freight rail traffic in Canada. Meanwhile, chemical industry participants were largely supportive of a final rule adopted by the Surface Transportation Board (STB) on reciprocal switching for inadequate service by railroads, but think the scope was too narrow and it does not cover a significant portion of rail traffic. For the first time, the STB said it is requiring that three service metrics be maintained on a standardized basis across all Class 1 railroads. In the US, chemical railcar loadings represent about 20% of chemical transportation by tonnage, with trucks, barges and pipelines carrying the rest. In Canada, chemical producers rely on rail to ship more than 70% of their products, with some exclusively using rail. Rail is also the predominant shipping method for US ethanol. Additional reporting by Kevin Callahan and Stefan Baumgarten Please see the Logistics: Impact on chemicals and energy topic page

03-May-2024

RIO DE JANEIRO (ICIS)–Huntsman’s assets in Europe are not energy intensive and have been spared from the energy crisis, but more broadly, the 27-country EU is still lacking a comprehensive policy to address the issue, the CEO at US chemicals major Huntsman said on Friday. Peter Huntsman, one of the chemical industry’s most outspoken CEOs, said the company is not planning to divest any asset in Europe but said the region should stop its “nonsense” about reindustrialization and implement policies that create actual economic growth. The CEO added he is feeling “bullish” about the coming quarters regarding demand, arguing the chemical industry had gone to “hell” and was just coming back from the steep low prices of 2023. In North America, Huntsman said the construction industry should post a marked recovery in the coming quarters after two years in the doldrums because of high interest rates because, he argued, even with current interest rates, the industry will adapt. Huntsman’s sales and earnings in the first quarter fell again, year on year, as higher sales volumes could not offset low selling prices; the company said, however, that a notable improvement in sales volumes quarter on quarter should be a signal that the recovery is underway. Among others, Huntsman produces polyurethanes (PUs), which are widely used in the construction and automotive sectors. EUROPE NONSENSEPeter Huntsman on Friday first referred to the EU’s need to stop its “nonsense” about reindustrialisation, without elaborating further, but he was more measured when asked about the company’s assets in that region. He nonetheless made clear that he thinks European governments have yet to formulate, two years into the region’s biggest energy crisis in decades, appropriate policies to address the issue. “What I am most concerned about Europe is high energy costs. Most of our businesses there are not energy intensive assets, so they are competitive; in fact we have some strong businesses there, and our margins in Advanced Materials [the division] are stronger there than in other parts of the world,” said Huntsman, speaking to reporters and chemical equity analysts on Friday. “There are businesses in Europe in which you will do OK, such as aerospace, lightweighting. But if you are energy intensive, if you produce fertilizers, glass, cement… you have some portfolio concerns there. Energy prices are too high, and this is not being addressed by governments, they still have to come up with realistic policies to address that.” Europe’s construction has also taken a hit from the crisis after interest rates shot up to bring down inflation, with projects put on hold and many building companies in financial distress. Huntsman’s CEO said he is not hoping for a strong recovery anymore in that sector in Europe, but simply for stability, which could come with governments taking more decisive action to prop up GDP growth. “If we look at the past two years… We are looking for stability: it is the volatility that concerns us the most. We need to see Europe stop its the nonsense policies around reindustrialization and get the economy growing once again,” he said. See Huntsman assets in Europe at bottom table. NORTH AMERICA CONSTRUCTIONPeter Huntsman was feeling more optimistic about North America’s construction sector, where even if high interest rates stay for longer, builders will adapt to the situation, easing the way towards a recovery. “US builders are doing two things: if interest rates were to stay where they are, they are going to adapt, perhaps building smaller units, and if rates do come down, that will open up demand quite a bit higher than it has been in the last couple of years. There are big gaps [in housing stock] which need to filled,” said Huntsman. “I am increasingly feeling better and better [about an improvement in demand]. In Q1 we saw a lot of inventory drawdown, now we are seeing a slow, steady recovery as we try to get back to average inventory levels. By and large inventory levels feel pretty thin in MDI [methylene diphenyl diisocyanate] and we look forward to moderate growth in coming quarters.” MDI is consumed mainly in PU foams, used in construction, refrigeration, packaging, and insulation. MDI is also used to make binders, elastomers, adhesives, sealants, coatings and fibers. Huntsman’s CFO, Philip Lister, also at the press conference, added that in a normal year the company’s growth in volumes from the first quarter to the second would be around 5%, as construction and other seasonal activities enter their annual peak. “This year, we are expecting more [than 5% growth],” said Lister. CHINA ELECTRIC VEHICLESHuntsman’s CEO said China’s electric vehicle (EV) sector continues to boom, although potential trade restrictions in the EU, after those imposed by the US, could start denting China’s dominance in that sector. However, the company also knows what China’s dominance in the sector, thanks to the country’s strong public support for it, can mean for western producers: in 2023, Huntsman suspended an EV battery materials project in the US because of aggressive imports from China. But the CEO added that even if China’s EV sector slowed down, the company would still be able to tap into other growing markets such as lightweighting or insulation, among others. “The automotive sector continues to be one of the strongest areas of growth in China. How long that continues [remains to be seen], but probably for some time still,” said Huntsman. “There is a broader question about [trade in the EV chain] with the US, which has been extremely limited, or Europe, where there is a lot of talk about limitations to China’s EVs.” He added that despite sluggish activity in the residential construction sector because of financial woes in building companies, exemplified by the demise of major company Evergrande, subsectors such as energy conservation, insulation, building materials and infrastructure are still doing well. “By and large we are seeing in China a slow but steady recovery in volumes and pricing. Elsewhere, I am getting more bullish. A year ago, we were in a nightmare, and we expected a recovery in the second half [of 2023] which didn’t happen and got worse and worse, until we found ourselves in hell,” said Huntsman. “At the beginning of this year we have seen good, reliable, consistent growth. What we need to see is that growth continues in the second half of this year.” HUNTSMAN ASSETS IN EUROPE Product Location Capacity (in tonnes) Aniline Wilton, UK 340,000 Epoxy resins Bergkamen, Germany 18,000 Monthey, Switzerland 120,000 Duxford, UK 10,000 Isocyanates Runcorn, UK 70,000 Maleic anhydride (MA) Moers, Germany 105,000 MDI Rozenburg, The Netherlands 470,000 Nitrobenzenes Wilton, UK 455,000 Polyalolef Grimsby, UK 15,000 Polyester polyols Huddersfield, UK 20,000 Rozenburg, The Netherlands 86,000 Unsaturated polyester resins (UPRs) Ternate, Italy 8,000 Source: ICIS Supply & Demand Database Front page picture: Huntsman’s headquarters in The Woodlands, Texas  Source: Huntsman Additional reporting by Miguel Rodriguez-Fernandez

03-May-2024

BARCELONA (ICIS)–A more optimistic outlook for the global economy and chemicals could be jeopardized by rising geopolitical instability. Current downturn reminiscent of 1970s' oil shock Global GDP growth could start to recover from 2025 Geo-political risks are rising and could jeopardise economy Chemicals CEOs slightly more upbeat PMIs show China manufacturing now expanding But China challenged by debt, property bubble, youth unemployment, demographics Expect 2-3%/year China GDP growth in 2030s as population declines Europe economy is stabilising, driven by services US economy should see a soft landing In this Think Tank podcast, Will Beacham interviews ICIS chief economist Kevin Swift, ICIS Insight editor Nigel Davis and Paul Hodges, chairman of New Normal Consulting. Editor’s note: This podcast is an opinion piece. The views expressed are those of the presenter and interviewees, and do not necessarily represent those of ICIS. ICIS is organising regular updates to help the industry understand current market trends. Register here . Read the latest issue of ICIS Chemical Business. Read Paul Hodges and John Richardson's ICIS blogs.

03-May-2024

TORONTO (ICIS)–Workers at freight rail carriers Canadian National (CN) and Canadian Pacific Kansas City (CPKC) have voted in favor of a strike. A first work stoppage could occur as early as 22 May, if no new collective agreements are reached by then, officials at labor union Teamsters Canada Rail Conference (TCRC) said in a televised announcement on 1 May. The rail carriers warned that a work stoppage would disrupt supply chains throughout North America and constrain trade between Canada and the US and Mexico. The two railroads account for the bulk of freight rail traffic in Canada. Canada-based chemical and fertilizer producers rely on rail to ship more than 70% of their products, with some exclusively using rail. In the run-up of strikes, producers have to make preparations. Longer strikes can force plant shutdowns and after a strike ends it can take weeks for normal operations to resume. For the first 17 weeks of 2024, ended 27 April, Canadian chemical railcar loadings were 233,074, up 3.1% from the same period in 2023, according to  the latest freight rail data released on 1 May. Chemical industry sources had warned about the possibility of a rail strike in Canada early last month. The country's labor law requires a minimum of 72-hours notice prior to a strike or lockout. TCRC represents about 9,000 CN and CPKC engineers and conductors. The previous collective agreements expired on 31 December 2023. Thumbnail photo source: CN

02-May-2024

SINGAPORE (ICIS)–SABIC's net income fell by 62% year on year to Saudi Riyal (SR) 250 million in the first quarter amid a drop in prices and sales volumes, the chemicals major said late on Wednesday. Losses from discontinued operations continue to weigh on results Overcapacity persists, pressuring the industry as market growth lags – CEO Spending range of $4 billion to $5 billion expected for 2024 in Saudi riyal (SR) billions Q1 2024 Q1 2023 % Change Sales 32.69 36.43 -10 Operational profit 1.21 1.76 -31 Net income 0.25 0.66 -62 "The decrease in net profit is attributed to lower revenues, lower results from associates and joint ventures in addition to losses from discontinued operations," SABIC said in a filing on the Saudi bourse, Tadawul. SABIC swung to a net loss of Saudi riyal (SR) 2.77bn ($739m) in 2023, largely due to one-off losses related to a divestment. Q1 revenue fell following a 3% decline in average selling prices and a 7% reduction in sales quantities. "Global economic uncertainty remained high during the first quarter of 2024, caused by geopolitical and logistical issues. Adding to these challenges were high global inflation levels and strict lending policies," SABIC CEO Abdulrahman Al-Fageeh said in a separate statement. Al-Fageeh in an investor call cautioned that overcapacity remains a challenge for the industry, creating a gap between supply and demand that is likely to persist throughout 2024. While positive demand signals emerged in Q1 2024, "the year outlook remains uncertain as the world still navigates through geopolitical situations with high inflation", he said. SABIC plans to adopt a disciplined approach to capital expenditure, projecting a spending range of $4 billion to $5 billion for the year, compared with $3.5 billion to 3.8 billion last year. NEW PROJECTS SABIC has started construction of its $6.4bn manufacturing complex in China’s southern Fujian province. The project "would add a qualitative range of products to SABIC’s portfolio of chemicals and polymers and enhance the company's presence in the Chinese market", the company said. The project will include a mixed-feed steam cracker with up to 1.8m tonne/year ethylene (C2) capacity and various downstream units producing ethylene glycols (EG), polyethylene (PE), polypropylene (PP) and polycarbonate (PC), among other products. SABIC also inaugurated the world’s first large-scale electrically heated steam olefins cracking furnace in Netherlands, which will pave the way for the company to fulfill its commitment to reach carbon neutrality by 2050. SABIC is 70%-owned by energy giant Saudi Aramco. ($1 = SR3.75) Thumbnail photo by SABIC Focus article by Nurluqman Suratman

02-May-2024

HOUSTON (ICIS)–Economic activity in US manufacturing contracted in April after expanding in March, according to the Institute of Supply Management’s (ISM) latest purchasing managers’ index (PMI) survey released on Wednesday. March's expansion followed 16 consecutive months of contraction. In April, the PMI fell from 50.3 points in March to 49.2 in April. PMIs below the neutral 50.0 mark indicate a contraction in manufacturing activity, readings above 50.0 indicate an expansion. In commenting on the April PMI survey, Kevin Swift, ICIS senior economist for global chemicals, noted that: Nine industries out of 18 expanded in April. The chemical industry gained for the fourth month after 16 months of decline. Overall manufacturing production fell back but continued to expand. Demand remains at the early stages of recovery and was softer last month. Customer inventories were deemed “too low” and employment contracted again during the month. New orders slipped back into contraction territory. Order backlogs contracted at a faster pace than in March. Inventories contracted at the same pace as in March. Both new orders and order backlogs, when combined with the reading on inventories, are good indicators of future activity, the economist said. PRICES He also noted that prices registered a 5.1-point gain to reach 60.9 in April – their strongest reading since June 2022. Prices are sensitive to changes in supply and demand and tend to provide a leading signal, he said. The rise in prices is "troubling" as it suggests that inflation readings in coming months may come in above expectations, he said. “The key is to watch the price of oil, which is a cost component for most manufactured goods, logistics, and many services,” he said. “If gains in disinflation prove stubborn, higher and longer interest rates are likely, and combined with an election year, provide an argument for no interest rate cuts,” he said. “Not good for housing and light vehicles, but good for savers,” he added. (source: ISM) Please also visit Macroeconomics: Impact on Chemicals. Thumbnail shows an automobile production line. Image by Martin Divisik/EPA-EFE/Shutterstock

01-May-2024

SAO PAULO (ICIS)–Brazilian chemicals producers are lobbying hard for an increase in import tariffs for key polymers and petrochemicals from 12.6% to 20%, and higher in cases, hoping the hike could slow down the influx of cheap imports, which have put them against the wall. For some products, Brazil’s chemicals trade group Abiquim, which represents producers, has made official requests for the import tariffs to go up to a hefty 35%, from 9% in some cases. On Tuesday, Abiquim said several of its member companies “are already talking about hibernating plants” due to unprofitable economics. It did so after it published another set of somber statistics for the first quarter, when imports continued entering Brazil em masse. Brazil’s government Chamber of Foreign Commerce (Camex) is concluding on Tuesday a public consultation about this, with its decision expected in coming weeks. Abiquim has been busy with the public consultation: it has made as many as 66 proposals for import tariffs to be hiked for several petrochemicals and fertilizers, including widely used polymers such polypropylene (PP), polyethylene (PE), polyethylene terephthalate (PET), polystyrene (PS), or expandable PS (EPS), to mention just a few. Other chemicals trade groups, as well as companies, have also filed requests for import tariffs to be increased. In total, 110 import tariffs. HARD TO FIGHT OFFBrazil has always depended on imports to cover its internal chemicals demand, but the extraordinary low prices coming from competitors abroad has made Brazil’s chemicals plant to run with operating rates of 65% or lower. More and more, the country’s chemicals facilities are becoming white elephants which are far from their potential, as customers find in imported product more competitive pricing. Considering this dire situation and taking into account that the current government in Brasilia led by Luiz Inacio Lula da Silva may be more receptive to their demands, Abiquim has put a good fight in publica and private for measure which could shore up chemical producers’ competitiveness. This could come after the government already hiked import tariffs on several products in 2023 and re-introduced a tax break, called REIQ, for some chemicals which had been withdrawn by the previous Administration. While Brazil’s chemicals production competitiveness is mostly affected by higher input costs, with natural gas costs on average five times higher than in the US, the industry is hopeful a helping hand from the government in the form of higher import tariffs could slow down the flow of imports into Brazil. As a ‘price taker region’ given its dependence on imports, Latin American domestic producers have taken a hit in the past two years. In Brazil, polymers major Braskem is Abiquim’s commanding voice. Abiquim, obviously, has always been very outspoken – even apocalyptic – about the fate of its members as they try to compete with overseas countries, namely China who has been sending abroad product at below cost of production. The priorities in China’s dictatorial system are not related to the balance of markets, but to keep employment levels stable so its citizens find fewer excuses to protest against the regime which keeps them oppressed. Capitalist market dynamics are for the rest of the world to balance; in China’s dictatorial, controlled-economy regime the priority is to make people feel the regime’s legitimacy can come from never-ending economic growth. The results of such a policy for the rest of the world – not just in chemicals but in all industrial goods – is becoming clear: unprofitable industries which cannot really compete with heavily subsidized Chinese players. The results of such a policy in China are yet to be seen, but subsiding at all costs any industry which creates employment may have debt-related lasting consequences: as they mantra goes, “there is no such thing as a free lunch.” Abiquim’s executive president urged Lula’s cabinet to look north, to the US, where the government has imposed hefty tariffs on almost all China-produced industrial goods or raw materials for manufacturing production. “[The hikes in import tariffs] have improved the US’ scenario: despite the aggressive advance in exports by Asian countries, the drop in US [chemicals] production in 2023 was of 1%, while in Brazil the index for production fell nearly by 10%,” said Andre Passos. “The country adopted an increase in import taxes of over 30% to defend its market from unfair competition. The taxation for some inputs, such as phenol, resins and adipic [acid], for example, exceeds three digits. “Here, we are suggesting an increase in rates to 20% in most claims … We need to have this breathing space for the industry to recover,” he concluded. As such, the figures for the first quarter showed no sign of imports into Brazil slowing down. The country posted a trade deficit $9.9 billion during the January-March period; the 12-month accumulated (April 2023 to March 2024) deficit stood at $44.7 billion. A record high of 61.2 million tonnes of chemicals products entered Brazil in Q1; in turn, the country’s industry exported 14.6 million tonnes. Abiquim proposals for higher import tariffs Product Current import tariff Proposed tariff Expandable polystyrene, unfilled, in primary form 12.6% 20% Other polystyrenes in primary forms 12.6% 20% Carboxymethylcellulose with content > =75%, in primary forms 12.6% 20% Other polyurethanes in liquids and pastes 12.6% 20% Phthalic anhydride 10.8% 20%  Sodium hydrogen carbonate (bicarbonate) 9% 35% Copolymers of ethylene and alpha-olefin, with a density of less than 0.94 12.6% 20% Other orthophthalic acid esters 11% 20% Other styrene polymers, in primary forms 12.6% 20% Other silicon dioxides 0% 18% Other polyesters in liquids and pastes  12.6% 20% Commercial ammonium carbonates and other ammonium carbonates 9% 18% Other unsaturated polyethers, in primary forms 12.6% 20% Polyethylene terephthalate, with a viscosity index of 78 ml/g or more 12.6% 20% Phosphoric acid with an iron content of less than 750 ppm 9% 18% Dinonyl or didecyl orthophthalates 11% 20% Poly(vinyl chloride), not mixed with other substances, obtained by suspension process 12.6% 20% Poly(vinyl chloride), not mixed with other substances, obtained by emulsion process 12.6% 20% Methyl polymethacrylate, in primary form  12.6% 20% White mineral oils (vaseline or paraffin oils) 4% 35% Other polyetherpolyols, in primary forms 12.6% 20% Other unfilled epoxy resins in primary forms 12.6% 20% Silicon dioxide obtained by chemical precipitation 9% 18% Acrylonitrile-butadiene rubber in plates, sheets, etc 11% 35% Other organic anionic surface agents, whether or not put up for retail sale, not classified under previous codes 12.6% 23% Phenol (hydroxybenzene) and its salts 7% 20% Fumaric acid, its salts and esters 10 ,8% 20% Plasticizers and plastics 10 ,8% 20% Maleic anhydride 10 ,8% 20% Adipic acid salts and esters 10 ,8% 20% Propylene copolymers, in primary forms 12.6% 20% Adipic acid 9% 20% Unfilled polypropylene, in primary form 12.6% 20% Filled polypropylene, in primary form 12.6% 20% Methacrylic acid methyl esters 10 ,8% 20% Other ethylene polymers, in primary forms 12.6% 20% Acrylic acid 2-ethylhexyl esters 0% 20% 2-Ethylexanoic acid (2-ethylexoic acid) 10. 8% 20% Other copolymers of ethylene and vinyl acetate, in primary forms 12.6% 20% Other unfilled polyethylenes, density >= 0.94, in primary forms 12.6% 20% Polyethylene with a density of less than 0.94, unfilled 12.6% 20% Other saturated acyclic monoalcohol acetates, c atom <= 8 10. 8% 20% Polyethylene with a density of less than 0.94, with filler 12.6% 20% Triacetin 10. 8% 20% Sodium methylate in methanol 12.6% 20% Stearic alcohol (industrial fatty alcohol) 12.6% 20% N-butyl acetate                              11% 20% Stearic acid (industrial monocarboxylic fatty acid) 5% 35% Alkylbenzene mixtures 11% 20% Organic, non-ionic surface agents 12.6% 23% Ammonium nitrate, whether or not in aqueous solution 0.0% 15% Monoethanolamine and its salts 12.6% 20% Isobutyl alcohol (2-methyl-1-propanol) 10.8% 20% Butan-1-ol (n-butyl alcohol) 10.8% 20% Styrene-butadiene rubber (SBR), food grade as established by the Food Chemical Codex, in primary forms 10.8% 22% Styrene                                9% 18% Hexamethylenediamine and its salts 10.8% 20% Latex from other synthetic or artificial rubbers 10.8% 35% Propylene glycol (propane-1, 2-diol) 10.8% 20% Preparations 12.6% 20% Linear alkylbenzene sulfonic acids and their salts 12.6% 23% 4,4'-Isopropylidenediphenol (bisphenol A, diphenylolpropane) and its salts 10.8% 20% Dipropylene glycol 12.6% 20% Butanone (methyl ethyl ketone) 10.8% 20% Ethyl acetate                                 10.8% 20% Methyl-, ethyl- and propylcellulose, hydroxylated 0.0% 20% Front page picture: Chemical production facilities outside Sao Paulo  Source: Union of Chemical and Petrochemical industries in the state of Sao Paulo (Sinproquim) Focus article by Jonathan Lopez Additional information by Thais Matsuda and Bruno Menini

30-Apr-2024

SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson. The thing about petrochemicals is that events in our industry reflect what’s happening in every manufacturing chain and in the broader economy, as we supply indispensable raw materials. China's exports of electric vehicles (but also traditional fossil-fuel motors) and solar panels have soared. This has occurred as local capacity has also soared – and as manufacturing operating rates in general have declined to record lows on weak domestic demand. China’s polypropylene (PP) exports jumped by 96% in Q1 this year over the first quarter of 2023 to 619,367 tonnes. If the same export momentum was maintained throughout 2024, this year’s total exports would reach 2.5m tonnes compared with 1.3m tonnes in 2023. The early ICIS data for 2024 suggests that this year’s PP operating rate in China will be just 75% compared with the 1992-2023 average of 87% – during the Petrochemicals Supercycle. In 1992-2023, China’s PP capacity as a percentage of demand averaged 79%. This looks set to rise to 140% in 2024-2030. Growing trade tensions – recently underlined by US Treasury Secretary Janet Yellen’s comment that China’s capacity in new green industries was “too big” for the world to absorb – tell us this: China will struggle to grow exports by enough to maintain GDP growth at 4-5% per year. Increasing domestic consumption to achieve the same end also seems very difficult because of the end of the real estate bubble, an ageing population and the just-mentioned trade tensions. “Only 37% of China’s national income is spent by Chinese households on goods and services. That level is lower than anywhere else in the world—except for a few small tax havens and commodity hyper-exporters when prices are high,” wrote Mathew Klein on his The Overshoot blog. Early data for this year suggest that China’s PP demand growth in 2024 will be 2%. Growth in 2023 appears to have been flat. This suggests that demand growth has entered a New Normal of 1-3% per year versus the 1992-2021 Petrochemical Supercycle average of 12%. The China CFR PP price spread between CFR Japan naphtha costs has averaged just $203/tonne so far this year, the lowest since our price assessments for the above three grades began in 2003. I keep reflecting-back on Gillian Tett’s masterful Fool’s Gold, her account of the Global Financial Crisis. In the book, she details how too few bankers, politicians, regulators and financial analysts were able to take a helicopter view of events that led up to 2008 because they were trapped in “silos” of specialist knowledge. This meant that the problems with mortgage-backed securities were largely missed. So I believe has been the case with the events in and surrounding China. Experts in PP and other petrochemicals were good at building plants and in sales and marketing, but not so good at seeing connections between China’s demographics, its property bubble, its relatively weak domestic consumption and the shift in its relationship with the West. Editor’s note: This blog post is an opinion piece. The views expressed are those of the author, and do not necessarily represent those of ICIS.

30-Apr-2024

HOUSTON (ICIS)–Here are the top stories from ICIS News from the week ended 26 April. LyondellBasell sees continued PE momentum in North America, Europe – CEO Polyethylene (PE) demand in North America and Europe should continue to improve in Q2 and through H2 with consistently healthy demand in packaging, the CEO of LyondellBasell said on Friday. Eastman eyes 2027 startup for second US methanolysis plant, French project timing uncertain Eastman expects to reach a final investment decision (FID) on its second US methanolysis (chemical recycling) plant in Q3, CEO Mark Costa and CFO Willie McLain told analysts during the company’s Q1 earnings call on Friday. Dow sees ‘meaningful’ H2 recovery on PE margins, steady demand improvement – CFO Dow continues to expect a strong second half, mainly driven by higher integrated polyethylene (PE) margins, with Q2 sales also expected to trend higher versus the first half in all three of its segments, its chief financial officer said on Thursday. INSIGHT: Latin America’s nascent EV market increasingly a Chinese affair Latin America’s take-up of electric vehicles (EVs) has started to gain momentum, said the International Energy Agency (IEA) this week, with Chinese producers drawing customers with sharply lower prices than western, established brands. Canada moves ahead with plastics registry as UN plastics pollution session starts in Ottawa Following the conclusion of a consultation period, Canada’s federal government has published a formal notice in the Canada Gazette for its planned Federal Plastics Registry. Styrolution Sarnia closure further tightens North America styrene market INEOS Styrolution’s decision this past weekend to temporarily close its Sarnia, Ontario, styrene unit will further tighten a market already dealing with several outages. Prices are under upward pressure with contract prices the highest since Q3 2023.

29-Apr-2024

SAO PAULO (ICIS)–The founder of Unigel, aged 87, is actively fighting the Brazilian chemicals and fertilizers producer’s most decisive battle, one for its survival, as it tries to restructure its debts, one step away from bankruptcy. Henri Armand Szlezynger, who founded Unigel in 1966, has fought several financial battles before, and overcame them. But the current struggle is the most decisive yet because it could see him and his family losing their controlling stake at the producer if investment funds were to take over. Last week, Brazilian financial daily Valor reported the country’s fund IG4 was seeking to acquire a controlling stake in Unigel, citing several unnamed sources. IG4 and Unigel had not responded to a request for comment at the time of writing. Unigel producers styrenics and is one of Brazil’s few fertilizers producers, a sector it entered just a few years ago and which could prove to have been the reason for the company’s threatened demise. BELGIUM-BORN, BRAZIL-MADEIf ICIS had a profile section portraying chemicals industry people, Szlezynger would have featured in it several times. Szlezynger was born to a Belgian Jewish family in 1936 which moved to Brazil when he was just three years old as Europe was entering the abyss of war. The family had a good position and sent Szlezynger to the best schools in Brazil. After that, he went to the US to study chemical engineering at the Massachusetts Institute of Technology (MIT). Aged only 30, he founded Unigel. From there, on he went to become one of Brazil’s richest citizens, with Forbes estimating his net worth at Brazilian reais (R) 17.2 billion ($3.3 billion) in 2022. From its foundation 58 years ago, Szlezynger still controls Unigel, and his presence cannot go unnoticed: he still goes to the company's headquarters in Sao Paulo every weekday, according to previous profiles of him published in the press. A remarkable fate for an 87-year-old. Unigel’s frantic 2023 was marked by high natural gas costs which made its fertilizer plants – and the company as a whole – a loss-making enterprise, a situation it tried to fix by knocking on the door of Brazil’s state-owned energy major Petrobras. With a government-appointee CEO, to say Petrobras is to say Luiz Inacio Lula da Silva, a President who has repeatedly said that Brazil must reduce its dependence on fertilizer imports. In Brazil’s economy, entrepreneurs and politicians tend to have close relationships, and Szlezynger has recurrently ticked the right boxes to get the support his company may have needed as the years and crises went by. In the north, stronghold of Lula’s Workers’ Party (PT), he has not shied away from showing sympathy with PT politicians. In southern and generally conservative-governed states, Szlezynger has had good relationships with politicians from the right. However, the business-politics link did not work for Unigel’s current downturn. Conversations with Petrobras were going nowhere while the company continued to lose millions every month. In a way, Unigel’s annus horribilis of 2023 ended slightly earlier, in October, when everything changed: the company failed to pay a coupon on one of its bonds, effectively defaulting on its debt obligations. Brazilian financial regulations give breathing space for companies in debt stress to negotiate their obligations with creditors, and Unigel is currently undergoing that process. Earlier in April, it said negotiations were progressing, without disclosing more detail. Jonathan Szwarc, head of Latin America credit research at Debtwire, a data firm specialized on leveraged capital markets, told ICIS that Szlezynger would not easily give up his controlling interest, but added the current crisis would be difficult to circumvent. “Unigel has had financial woes before and overcame them, but this time is quite different: once you fail to pay a coupon, things can go down very quickly. You are not meeting your debt obligations: a default,” said Scwarz. “The company has now an initial agreement with some of its creditors, but it would need to convince 50% plus one of them for it to be effective: we don’t know if that is the case. That’s where they are: seeking adherents to that initial agreement to bring it before a judge, who must approve the Extrajudicial Reorganization Process.” Will Szlezynger, after 58 successful years, be forced by circumstances to call it a day? Not that fast. Szwarc said that, in Unigel’s case, sentimental issues could be as strong as economic issues. “If they are up against it, Szlezynger may decide to reluctantly sell the company, but I really think that is the last option he contemplates," he said. "If Unigel was to be sold to a fund, I imagine he would prefer a Brazilian fund, with whom he would speak the same language business-wise, than a foreign fund." As an example, the analyst mentioned negotiations to raise $150m just in January, in the midst of the debt restructuring negotiations, through a group led by US investment fund Pimco, which is also the largest bondholder, according to reports at Brazilian financially daily Valor at the time. That deal, which could have given Unigel breathing space amid its restructuring, fell through because it would have brought closer what Szlezynger has fiercely opposed: the funds taking away from the founding family a controlling interest. “The company’s assets are good. But Unigel was very unlucky in terms of the petrochemicals and fertilizers downcycles combined. You must keep in mind that just in 2022 Unigel’s bonds were trading well over 100% [generating returns],” said Szwarc. “The assets will continue operating in any case: either under a new ownership structure, in which the Szlezynger may still have a stake even if it’s not the controlling stake, or under a potential bankruptcy, when the assets could be sold separately.” The analyst concluded saying he did fail to understand how Petrobras – the Lula-led government, effectively – had not paid more attention to Unigel, whose production of styrenics as well as fertilizers Brazil badly needs if the country is to reduce its dependence on imports. BRAZILIAN SAGAAmid all Unigel things that occurred in 2023, one of the most fascinating was its very public charge against Petrobras in November, when the company announced it would be shutting down one fertilizer plant in Camacari, state of Bahia, due to Petrobras’ “unbearable” pricing policy for natural gas. It was part of Unigel’s strategy, however, as it became clear later in December when the two firms signed a tolling agreement for the fertilizers assets, in what seemed to be Petrobras finally giving in on natural gas pricing. A Brazilian economic-political saga could not just end there. In March, Unigel announced it was halting its fertilizers production, still mentioning high natural gas prices, while Brazil’s Federal Audit (TCU in its Portuguese acronym) raised concerns about the tolling deal, which would have meant losses for Petrobras. As a state-owned company, Petrobras is audited by TCU civil servants. And as a company, the purpose of it is to make a profit: a sweet deal for Unigel on gas would not be following that logic, the auditors said. Adding to it all, Petrobras said earlier in April it was re-entering the fertilizers sector by re-starting a large fertilizer plant in Araucaria, state of Parana, idled since 2020. The energy major said fertilizers were now part of its strategic plan to 2028, adding it would therefore focus on “assets that already belong” to it. Unigel’s fertilizers plants at the centre of the story, Camacari and Laranjeiras, state of Sergipe, were a lease from Petrobras signed in 2019, when the prior Brazilian Administration wanted Petrobras’ to focus on crude oil. It was then when Unigel decided to go big on fertilizers. What does seasoned Szlezynger think about that move now? He would not be too hard on himself if he thinks it was a bad move indeed, which is putting at risk his nearly six decades business legacy. Petrobras returning to the fertilizers sector is, on the other hand, an expected move by Lula’s cabinet, who in general wants to expand the role of the state in the economy, or at least in those sectors where the country's trade deficit is large, such as fertilizers. The two plants leased to Unigel may end up, therefore, being run by Petrobras again at some point. Unigel and its relentless founder will need to fend for themselves amid the largest financial crisis ever hitting the company. At the end of the day, Lula's key constituency and the PT party's cadres would have had a hard time to digest the state was going to give strong and direct support to a private company owned by one of the richest citizens in the land. The Unigel saga continues and, whatever the next act is, Szlezynger is still likely to have a role in it. Insight by Jonathan Lopez

29-Apr-2024