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SHIPPING: Global container rates edge higher, volumes shifting to West Coast ahead of tariffs

HOUSTON (ICIS)–Global shipping container rates edged slightly higher this week as they continue to moderate after more than doubling from early-May, and rates from Shanghai to the US West Coast fell, according to supply chain advisors Drewry. Drewry’s composite World Container Index (WCI) rose by just 1% and is up by just 1.2% over the past two week, as shown in the following chart. Average rates from China to the US East Coast have continued to rise and are nearing $10,000/FEU (40-foot equivalent unit), as shown in the following chart. Drewry expects ex-China rates to hold steady next week and remain high throughout the peak season. Rates from online freight shipping marketplace and platform provider Freightos showed similar rates of increase. Judah Levine, head of research at Freightos, in noting the slower rate of increase also pointed to signs that prices may have already peaked. “Daily rates so far this week are ticking lower and major carriers have not announced surcharge increases for later this month or August,” Levine said. Levine said peak season likely started early this year as retailers ordered early to beat possible labor issues at US Gulf and East Coast ports and as consumers continued to spend on goods. Emily Stausboll, senior shipping analyst at ocean and freight rate analytics firm Xeneta, said she is seeing some carriers already lowering spot rates. “This suggests a growing level of available capacity in the market and shippers can once again start to play carriers off against each other – instead of feeling they need to pay whatever price they are offered to secure space. As the balance of negotiating power starts to swing back towards shippers, we should see spot rates start to come back down,” Stausboll said. 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. VOLUMES SHIFT TO WEST COAST The Port of Los Angeles saw a 10% increase from the previous month and a slight increase year on year in volumes, Gene Seroka, executive director of the Port of Los Angeles said. Some retailers are rushing to import volumes ahead of the US presidential election in November as Republican nominee Donald Trump has proposed hiking tariffs, especially on goods from China. But a persistently strong economy is also supporting the rise in imports. “The US economy continues to be the primary driver of our cargo volume and I expect to see that continue in the months ahead,” Seroka said. Many importers shifted their deliveries to the US East Coast in 2022 when congestion at West Coast ports surged amid strong consumer demand coming out of the pandemic. The shift in volumes from the East Coast has not led to any congestions at the West Coast ports of Los Angeles and Long Beach, according to the Marine Exchange of Southern California (MESC). “Vessels and cargo arriving, departing, and shifting around the ports of LA and LB and continue to move normally with no labor delays and ample labor,” MESC executive director Kip Louttit said. Louttit also said the forecast for arriving container ships over the next two weeks is trending higher. LIQUID CHEM TANKER RATES Rates for liquid chemical tankers ex-US Gulf were stable to softer this week, with decreases seen on the USG-Asia and USG-Brazil trade lanes. From the USG to Asia, there has still been interest in large cargoes, but volumes overall have been slowing down. The absence of market participants has caused freight rates to stumble some, with more downward pressure on smaller parcels due to the small pockets of space readily available. From the USG to Brazil, the list of ships open in the USG continues to grow, with space still available which could lead to continued downward pressure and even lower rates. Activity typically picks up during summer months, but this is not currently being seen. PANAMA CANAL The Panama Canal will limit transits from 3-4 August because of planned maintenance. The east lane of the Miraflores locks will be out of service for concrete maintenance on the east approach wall, the Panama Canal Authority (PCA) said. The PCA began limiting transits in July 2023 because of low water levels in Gatun Lake caused by an extended drought. Restrictions have gradually eased over the past few months and are approaching the average daily transits of 36-38/day seen prior to impacts from the drought. The improved conditions at the canal are likely to improve transit times for vessels traveling between the US Gulf and Asia, as well as between Europe and west coast Latin America countries. This should benefit chemical markets that move product between regions. Wait times for non-booked southbound vessels ready for transit have been relatively steady at less than two days, according to the PCA vessel tracker. Wait times were less than a day for northbound vessels and less than two days for southbound traffic. Focus article by Adam Yanelli With additional reporting by Kevin Callahan Visit the ICIS Logistics – impact on chemicals and energy topic page.

19-Jul-2024

ICIS Economic Summary: US eyes coming interest rate cuts as consumer spending, inflation eases

NEW YORK (ICIS)–With solid progress on disinflation and the labor market easing, financial markets are sharpening their focus on the coming interest rate cut cycle, with the first move expected in September. Ten-year Treasury yields are collapsing and economically sensitive stocks surging, as consensus moves to as much as three cuts of 25 basis points by the Federal Reserve in 2024 and further easing next year. All this comes as the consumer – the key driver of the US economy – is showing signs of fatigue. With COVID-era savings largely tapped out and the labor market easing, consumer spending is poised to slow going forward, bringing down overall economic growth as well as inflation. The latest US retail sales report confirmed the trend of a continuing slowdown in consumer spending, with June flat versus May. Year-on-year, retail sales were up just 2.3% – lower than the current inflationary trend.  This also implies a drop in volumes. There was notable year-on-year strength in ecommerce (+8.9%), bars and restaurants (+4.4%) and apparel (+4.3%). Weakness was led by furniture and home furnishings (-4.0%); sporting goods, hobby, musical instruments and books (-3.4%) and motor vehicles and parts (-2.2%). We are not talking about a collapse in consumer spending, but an easing is clearly in effect, naturally in line with a softening labor market. The unemployment rate has continued to slowly tick higher and is now at 4.1% versus a low of 3.4% in January. And the ratio of job openings versus unemployed now stands at 1.2 – close to pre-pandemic levels. The number of high-profile US retail earnings disappointments and stock price collapses continues to pile up. These include Helen of Troy, a producer of branded consumer home, outdoor, beauty and wellness products, sportswear giant Nike, coffee and beverage retailer Starbucks and restaurant group McDonald’s – all in the consumer discretionary camp. INFLATION RATE CONTINUES TO FALLThis slowdown in consumer spending is showing up in inflation numbers as well, with the June core Consumer Price Index (CPI) – excluding food and energy – actually falling 0.1% from May. From a year ago, it was up 3.3% in June, showing further progress from May’s 3.4% print. Services inflation has been sticky, but relief may be on its way. The ISM® US Services Purchasing Managers’ Index (PMI®) for June showed a huge 5.0-point decline from May to 48.8 – in contraction territory (under 50) for the second month in three. On the US manufacturing front, the recovery is sputtering as the ISM US Manufacturing PMI fell further in June to 48.5 – in contraction for the third consecutive month after eking out an expansion in March for the first time in 17 months. This puts the widely expected H2 recovery in chemicals volumes in jeopardy. US housing starts rose 3.0% in June versus May to an annualized pace of 1.35 million, but the gains were in the multifamily sector as single-family starts fell for the fourth consecutive month – by 2.2% in June. Total June starts were down 3.1% year on year. ICIS projects US housing starts of 1.43 million for 2024, rising to 1.49 million in 2025. US light vehicle sales ended Q2 on a sour note, with June sales falling 4.0% from May to a 15.3-million-unit pace, which was also off 4.8% from a year ago. For 2024, ICIS projects light vehicle sales improving to 15.8 million units versus 15.5 units in 2023 and rising further to 16.3 million units in 2025. ICIS forecasts US GDP growth slowing to 2.3% in 2024 from 2.5% in 2023, with the quarterly rate by Q4 at just 1.6%. For all of 2025, ICIS sees GDP growth slowing to 1.8%. While consumer spending is easing and high interest rates continue to weigh on manufacturing and key chemical end markets of housing and automotive, coming rate cuts by the Fed should boost sentiment and ultimately demand, particularly in cyclical sectors. Chemical stock prices are already catching a bid in anticipation. Even as the interest rate picture clears up, uncertainty abounds on the geopolitical and political fronts, with the upcoming US election in November in focus. For the chemical and manufacturing sectors, the spotlight on tariffs and their implications will only intensify.

19-Jul-2024

UPDATE: Global IT issues impact energy trading; Trayport services return

LONDON (ICIS)–IT issues that impacted energy trading systems on Friday morning were gradually being resolved, with market participants regaining access to critical applications. A flawed update of cybersecurity software CrowdStrike hit Windows operating systems, with IT outages affecting companies across many sectors. This included energy trading platform Trayport and several brokers, with trading operations impacted. Trayport said shortly after midday London time it had made “significant progress in implementing workarounds for the ongoing CrowdStrike-related outage”. It said its services were being restored, including risk-based trading, and that the group was working to bring the remaining services back online as quickly as possible. A German power trader told ICIS shortly after midday London time that “all was back to normal” and was able to access broker screens. “It has been very bad this morning. Now everything is working smoothly, but all connections were down for a while,” a gas trader added. A broker had told ICIS earlier in the morning that "hardly anything is working here, we are just waiting for systems to come back." LIQUIDITY Most traders contacted by ICIS reported issues affecting their usual trading activities as well as data used for analyzing market fundamentals. Some European gas and power traders said broker screens were not available and the issue was likely to affect liquidity throughout Friday’s trading session. Another added that they expected the number of transactions to go through at the end of the day to be down by about half. “I can chat and agree on deals, but I cannot put it in my system, meaning the P&L is not updated,” said one EU gas trader in the morning. "There's a lot of counterparties offline, and those that are online are reluctant to show prices this morning," said an LNG trader. Others reported fewer issues and said they could operate as usual. Intraday price movements highlighted that the global IT disruptions impacting energy trading activities on Friday did not have any significant impact on European gas and power prices, as highlighted by regional market commentaries published by ICIS. ENERGY EXCHANGES Commenting on the status of ICE’s derivatives markets, an ICE spokesperson told ICIS: “We are aware of the issue and markets are fully operational. We are in close dialogue with our customers on whether and how they’re impacted”. Earlier in the session, the European Energy Exchange (EEX) reported in a message to trading participants that customers using Trayport services were potentially facing technical problems. “Customers may observe problems to login or to trade via Trayport due to infrastructure issues with a third-party service provider,” EEX said. EEX also offered its assistance to customers for removing orders or trading on behalf. European power exchange EPEX SPOT, which is part of EEX, told ICIS that issues with the Spanish OMIE short-term trading platform, which caused a partial decoupling of markets on Friday morning, were not related to the global IT issues. It confirmed that all other European day-ahead power auctions were running to plan and order book closures were happening on time. Trading across the Nord Pool exchange was not impacted, a spokesman confirmed, and added that it was monitoring the situation closely. Spanish gas exchange MIBGAS also told ICIS it has not been affected by the outage. The electronic capacity trading platform RBP, owned by the Hungarian gas transmission system operator FGSZ Natural Gas Transmission, said it had not been impacted. IMPACT ON ENERGY COMPANIES Several energy companies contacted by ICIS did not report issues related to the global IT incident and were monitoring the situation. Spanish gas system operator Enagas told ICIS it “is not vulnerable because it does not have the impacted software installed, but an analysis is being carried out to foresee any eventual impact”. "As far as we're aware, everything has been fine here relating to the outages and we are not aware of any issues in the LNG shipping market making an impact," a UK-based shipbroker told ICIS. Other LNG shipping sources have also so far said they have noted no impact on terminals or shipping operations. Belgian gas system operator and LNG terminals operator Fluxys told ICIS “there have been some very minor issues without any real effect on flows”. The issues related to the “impact on the systems of our [external] partners.”, Fluxys' subsidiaries include Dunkerque LNG and Zeebrugge LNG. ICIS contacted other major European LNG operators and global energy companies but received no replies by the time of publishing.

19-Jul-2024

UPDATE: Global IT issues impact energy trading; Trayport services return

LONDON (ICIS)–IT issues that impacted energy trading systems on Friday morning were gradually being resolved, with market participants regaining access to critical applications. A flawed update of cybersecurity software CrowdStrike hit Windows operating systems, with IT outages affecting companies across many sectors. This included energy trading platform Trayport and several brokers, with trading operations impacted. Trayport said shortly after midday London time it had made “significant progress in implementing workarounds for the ongoing CrowdStrike-related outage”. It said its services were being restored, including risk-based trading, and that the group was working to bring the remaining services back online as quickly as possible. A German power trader told ICIS shortly after midday London time that “all was back to normal” and was able to access broker screens. “It has been very bad this morning. Now everything is working smoothly, but all connections were down for a while,” a gas trader added. A broker had told ICIS earlier in the morning that "hardly anything is working here, we are just waiting for systems to come back." LIQUIDITY Most traders contacted by ICIS reported issues affecting their usual trading activities as well as data used for analyzing market fundamentals. Some European gas and power traders said broker screens were not available and the issue was likely to affect liquidity throughout Friday’s trading session. Another added that they expected the number of transactions to go through at the end of the day to be down by about half. “I can chat and agree on deals, but I cannot put it in my system, meaning the P&L is not updated,” said one EU gas trader in the morning. "There's a lot of counterparties offline, and those that are online are reluctant to show prices this morning," said an LNG trader. Others reported fewer issues and said they could operate as usual. ENERGY EXCHANGES Commenting on the status of ICE’s derivatives markets, an ICE spokesperson told ICIS: “We are aware of the issue and markets are fully operational. We are in close dialogue with our customers on whether and how they’re impacted”. Earlier in the session, the European Energy Exchange (EEX) reported in a message to trading participants that customers using Trayport services were potentially facing technical problems. “Customers may observe problems to login or to trade via Trayport due to infrastructure issues with a third-party service provider,” EEX said. EEX also offered its assistance to customers for removing orders or trading on behalf. European power exchange EPEX SPOT, which is part of EEX, told ICIS that issues with the Spanish OMIE short-term trading platform, which caused a partial decoupling of markets on Friday morning, were not related to the global IT issues. It confirmed that all other European day-ahead power auctions were running to plan and order book closures were happening on time. Trading across the Nord Pool exchange was not impacted, a spokesman confirmed, and added that it was monitoring the situation closely. Spanish gas exchange MIBGAS also told ICIS it has not been affected by the outage. The electronic capacity trading platform RBP, owned by the Hungarian gas transmission system operator FGSZ Natural Gas Transmission, said it had not been impacted. IMPACT ON ENERGY COMPANIES Several energy companies contacted by ICIS did not report issues related to the global IT incident and were monitoring the situation. Spanish gas system operator Enagas told ICIS it “is not vulnerable because it does not have the impacted software installed, but an analysis is being carried out to foresee any eventual impact”. "As far as we're aware, everything has been fine here relating to the outages and we are not aware of any issues in the LNG shipping market making an impact," a UK-based shipbroker told ICIS. Other LNG shipping sources have also so far said they have noted no impact on terminals or shipping operations. Belgian gas system operator and LNG terminals operator Fluxys told ICIS “there have been some very minor issues without any real effect on flows”. The issues related to the “impact on the systems of our [external] partners.”, Fluxys' subsidiaries include Dunkerque LNG and Zeebrugge LNG. ICIS contacted other major European LNG operators and global energy companies but received no replies by the time of publishing.

19-Jul-2024

Global IT disruption impacts energy trading, no issues so far in chems sector

LONDON (ICIS)–Companies including financial services were hit by a global IT outage on Friday, with disruptions partly affecting energy trading. The chemicals sector currently appears unaffected though Poland's largest container terminal, the Baltic Hub in Gdansk, was reportedly having some issues. Trayport, a key data platfrom for European wholesale energy markets, issued a statement warning the outage was affecting some of its key services. “We are currently facing infrastructure issues due to a global outage with a third-party service provider” Trayport said in a statement. Trayport added it was currently implementing workarounds, and customers may begin to see some of Trayport services become available. “We continue to work closely with the vendor to resolve the situation as soon as possible,” it added. ICIS continued to receive trade information on European gas and power markets spread across multiple trading venues. However, traders contacted by ICIS reported issues: "Servers are not accessible for the moment. We can trade but not book deals," one trader said. A power trading source has said systems were unaffected in some countries. A gas trader in northern Europe said that some brokers were impacted, but that major exchange platforms were functioning as usual. Some trading companies are also faced internal IT issues. European power exchange EPEX SPOT reported a partial decoupling on the OMIE area, which includes Spanish and Portuguese power markets, for the IDA3 auctions, although it did not indicate whether it was related to the global IT outage. But the group reported a normal market status for most other markets and order book closures were also reported as being on time. Additional reporting by Clare Pennington

19-Jul-2024

BLOG: Petrochemicals after the Supercycle: Revised scenarios

SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson. The slide in today’s post is an updated version of the slide I first published late last year. Note that there is a new scenario added to the original two, A Bi-polar World. I could be wrong, of course. I might have given the wrong weightings to each of the scenarios, or more simply have chosen the wrong scenarios entirely. But today’s events point to very different outcomes than we saw during the 1992-2021 Petrochemicals Supercycle. Supermajors – 25% probabilityA small number of oil-and-gas-to-petrochemicals players dominate the business as they have increasingly turned oil and natural-gas liquids into petrochemicals at competitive costs. This is in response to the decline in crude-oil demand into transportation fuels because of the electrification of vehicles. Non-integrated petrochemical producers in Europe, South Korea, Singapore, Taiwan and Southeast Asia consolidate. Large swathes of capacity closes-down in these countries and regions to balance markets. A Bi-Polar World – 50% probabilityThe split between China and the US, and possibly the EU as well, widens. The rest of the developed world, including major petrochemical players in countries such as South Korea, Singapore and Japan, will need to decide where they stand: With the US and its partners or with China and its partners. They are at risk of losing access to the China market. Petrochemicals trade is largely confined to between China and its partners and between the US and its partners. No one scenario will be completely right. We could end up at any of many points between each of these three extreme outcomes. This is the case with Supermajors and A Bi-polar World. It could be that the closer relationship between Saudi Arabia and China allows Saudi Arabia to supply more of China’s petrochemicals deficits, allowing the Kingdom to perhaps realise some of its crude-oil-to-chemicals ambitions. A De-globalised World – 25% probabilityMarkets are in general much more regional. Instead of just a bi-polar world, we end up with beggar-thy-neighbour trade barriers similar in scale to the ones which led to the Great Depression. Petrochemical companies become much more “local for local”. Governments put up barriers to protect jobs and to ensure refineries don’t shut down along with uncompetitive petrochemical plants, thereby by protecting local supplies of transportation fuels. While extreme outcomes help push people out their comfort zones, supporting local petrochemical companies might instead fit at some mid-way point between all the scenarios. And “local for local” shouldn’t be viewed as automatically a bad thing. One can argue that because of today’s highly uncertain geopolitical world, local supplies of at least some petrochemicals are essential. Calling all senior management teams out there: You need to prepare your teams for the world after the Petrochemicals Supercycle. 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.

19-Jul-2024

Ursula von der Leyen wins second term for top EU job, stresses need for EU competitiveness

LONDON (ICIS)–Ursula von der Leyen on Thursday secured her re-election to a second five-year term as President of the European Commission, and identified competitiveness as the most pressing issue facing the EU. Following a June European parliamentary election season that saw liberal and centrist political blocs hold on to majority power but cede ground to right-wing and Eurosceptic parties, von der Leyen’s position as leader of the bloc was reaffirmed on 18 July. A total of 401 Ministers of European Parliament (MEPs) backed von der Leyen’s candidacy, equating to roughly the number of members linked to the centrist European People’s Party, left-wing Progressive Alliance of Socialists and Democrats, and  liberal group Renew Europe. A total of 360 votes in favour of von der Leyen were necessary to secure a majority. Of the 719 total MEPs, 284 voted against her, and 22 submitted blank or invalid votes, according to European Parliament. Chemicals sector representatives have expressed hopes that the next term of the European Parliament will feature a stronger focus on industrial competitiveness, in light of the impact of high energy prices on the long-term viability of some sectors. ““If you read the State of the Union, there are a number of statements which clearly indicate industry policy is back, that it will get, if not the deepest political priority, as there are issues like Ukraine, it will get political priority in the next commission,” Cefic director general Marco Mensink said, speaking in October 2023. The impact of higher energy prices on operating costs and the rollout of more cash-heavy subsidy frameworks elsewhere, such as the US Inflation Reduction Act, have intensified pressure on European industry. “Our competitiveness needs a major boost,” von der Leyen said, addressing MEPs earlier on Thursday. “The fundamentals of the global economy are changing. Those who stand still will fall behind. Those who are not competitive will be dependent. The race is on and I want Europe to switch gear,” she added. This push on competitiveness is likely to be focused on reducing the administrative burden on companies in the region and prioritising faster permitting, she added. Von der Leyen also intends to launch a Clean Industrial Deal within the first 100 days of her new term, she added, to channel investment in infrastructure and industry decarbonisation, particularly for energy-intensive sectors. Germany-based chemicals trade group VCI welcomed von der Leyen's re-election, but warned that Europe is at a crossroads in terms of its future trajectory. "We are at a turning point that will decide the future of Europe. Will we manoeuvre ourselves further into the side lines as a business location or back on the road to success? The new Commission must act decisively to balance sustainability and industrial competitiveness," said VCI CEO Wolfgang Grosse Entrup. No deviation is expected in the bloc’s 2030 and 2050 decarbonisation goals, despite growing murmurs that the EU is not on track to meet the 2030 targets with just over six years still remaining to build out infrastructure. “So I want to be clear. We will stay the course on our new growth strategy and the goals we set for 2030 and 2050. Our focus now will be on implementation and investment to make it happen on the ground,” von der Leyen added. Focus article by Tom Brown. Thumbnail photo: Ursula von der Leyen, speaking in Strasbourg, France, after winning re-election as European Commission President on 18 July 2024. (Source: Ronald Wittek/EPA-EFE/Shutterstock)

18-Jul-2024

INSIGHT: OUTLOOK: US chems may see revival of programs, UN plastic treaty

HOUSTON (ICIS)–The US chemical industry could see the return of some popular trade and chemical-safety programs later this year, and customers of the major railroads could get their first chance to switch carriers if they get bad service. The year is turning out to be a busy and potentially productive one despite the presidential election Key trade and security bills for the chemical industry could pass during the lame duck session, which falls between the November 5 election day and the January 20 inauguration Globally, the final round of negotiations for the UN plastics treaty should take place near the end of the year UN PLASTICS TREATYThe concern of the chemical industry is that the ratified plastic treaty could include caps or curbs on the production of plastic. Companies such as BASF have advocated that the treaty should focus on curbing pollution instead. Chemical companies have noted a growing consensus around the industry's views, leading them to be optimistic about the upcoming negotiations. The next round of talks is scheduled for November 25 through December 1 in Busan, South Korea. Formal ratification could take place in early 2025. RECRIPROCAL SWITCHING MAY GET FIRST TRIALReciprocal switching in the US will become effective in September, which will allow chemical companies to switch rail carriers if they can demonstrate substandard service. Reciprocal switching will be limited to Class 1 railroad companies, which are the biggest carriers. Redress for bad service is not automatic, and the process will require time, effort and legal fees on the part of chemical companies. "The question is how laborious and costly will that process be when you file a complaint?" said Eric Byer, president of the Alliance for Chemical Distribution (ACD) the new name for the National Association of Chemical Distributors (NACD). Still, it is possible that a chemical company upset with its rail service takes the plunge and files the first request for reciprocal switching. NEW RAIL BILL AND POSSIBLE TANK CAR BANA rail safety bill that passed the Senate shortly after the Norfolk Southern train derailment in Ohio state has recently received momentum that could push it into law. That momentum is coming from HR 8996, a sister bill that was introduced in the House of Representatives by Troy Nehls (Republican-Texas) and Seth Moulton (Democrat-Massachusetts). Related to the bill is a possible ban on DOT 111 tank cars. The ban is also connected to the derailment, since it is part of a settlement agreement between the US and Norfolk Southern. The agreement proposes that Norfolk Southern stop using its own DOT-111 tank cars and that it encourages its customers to do the same. The ACD is concerned that the agreement could be the first step in an outright ban of DOT 111 tank cars. Such a ban could take place before the industry has time to replace the tank cars. Hazardous materials would then be shipped by truck, which is more dangerous. A ban would also disrupt the movement of chemicals if it happens too quickly. REVIVAL OF CHEM SECURITY PROGRAMLegislators could revive the nation's main anti-terrorism program for chemical sites, which is known as the Chemical Facility Anti-Terrorism Standards (CFATS). CFATS has been inactive for about a year, after a bill that would have re-authorized it was blocked by US Senator Rand Paul (Republican-Kentucky). While CFATS has lost its authorization, it has not lost funding. Were Congress to re-authorize CFATS, employees who were associated with the program could be reassigned to it. Senators could attempt to revive CFATS through an amendment to the National Defense Authorization Act (NDAA), Byer said. That could happen later in September or during the lame duck legislative session, Byers said. Another tactic would add an amendment to the appropriations bill, he said. Congress will likely consider the appropriations bill during the lame duck session. REVIVAL OF TRADE PROGRAMSTwo trade programs popular with the chemical industry could also be revived during the lame duck session. The Generalised System of Preferences (GSP) expired at the end of 2020, and it eliminated duties on thousands of products from more than a 100 developing countries. Prior to its expiration, the GSP had existed for decades. Byer said a bill could bring back the GSP program and make it retroactive to January 1, 2021. If such a bill becomes law, companies would receive rebates for the taxes they paid while the GSP program was inactive. The GSP has typically been coupled with another expired trade program, known as the Miscellaneous Tariff Bill (MTB), Byer said. The MTB temporarily reduced or suspended import tariffs on specific products, and it could be packaged with any other legislative action that would revive the GSP. ELECTION SEASON TO LIMIT NEW BILLS, POLICIESOutside of the trade and security bills, Byer does not expect a lot of new legislation because of the elections. Similarly, the pace of new policies and rulemaking at federal agencies should slow down. Any regulatory relief would be a welcomed change because the first half of 2024 was the worst regulatory climate that the chemical industry has ever seen, Byer said. The regulatory climate could change after the elections on November 5. Otherwise, the chemical industry may have to turn to the courts to challenge policies that have a questionable basis and a harmful effect on companies. Insight article by Al Greenwood Thumbnail shows plastic waste. Image by HOTLI SIMANJUNTAK/EPA-EFE/Shutterstock

18-Jul-2024

Braskem Idesa ethane supply more stable, PE prices to recover in H2 2025 – exec

MADRID (ICIS)–Supply of ethane from Pemex to polyethylene (PE) producer Braskem Idesa is now more stable after a renegotiation of the contract – but the global PE market remains in the doldrums, according to an executive at the Mexican firm. Sergio Plata, head of institutional relations and communications at Braskem Idesa, said a recovery in global PE prices could start in the second half of 2025 as the market is expected to remain oversupplied in the coming quarters. Plata explained how Braskem Idesa had to renegotiate the terms of an agreement with Pemex, Mexico’s state-owned crude oil major, for the supply of natural gas-based ethane, one of the routes to produce PE, to its facilities in Coatzacoalcos. Supply is now more stable and in the quantities agreed, he said. Braskem Idesa operates the Ethylene XXI complex in Coatzacoalcos, south of the industrial state of Veracruz, which has capacity to produce 1.05 million tonnes/year of ethylene and downstream capacities of 750,000 tonnes/year for high-density polyethylene (HDPE) and 300,000 tonnes/year for low-density polyethylene (LDPE). Braskem Idesa is a joint venture made up of Brazil’s polymers major Braskem (75%) and Mexican chemical producer Grupo Idesa (25%). ETHANE FLOWING, TERMINAL IN Q1 2025 Pemex agreed with Braskem Idesa to supply the PE producer with a minimum volume of 30,000 barrels/day of ethane until the beginning of 2025, when Braskem Idesa plans to start up an import terminal in Coatzacoalcos to allow it to tap into exports out of the US Gulf Coast. However, both parties sat to renegotiate that agreement after Pemex’s supply proved to be unstable, with credit rating agencies such as Fitch warning in 2023 of the “operational risk” such a deal with the state-owned major represented for Braskem Idesa. The outcome of the renegotiation is starting to bear fruit, explained Plata diplomatically, without providing any details. He conceded, however, that to outsiders, Pemex’s businesses could look rather odd. “We understand the positions of a public entity such as Pemex, and we understand its methods could look questionable to eyes outside our relationship,” said Plata. “However, at Braskem Idesa we were confident that if we sat down with them to renegotiate, clearly stating what we require from each other, we could reach a point in the renegotiation which worked for us as a company and for the Mexican petrochemicals sector as a whole.” Together with more stable supply from Pemex, Braskem Idesa also adopted the so-called Fast Track to import ethane while its own import terminal starts up. The terminal, known as Terminal Quimica Puerto Mexico (TQPM), closed the last financing details at the end of 2023. Plata said the terminal would start up “without a doubt” by the beginning of 2025, adding that construction was 70% complete by the beginning of July. According to Plata, with Pemex’s more stable ethane supply and the Fast Track system, Braskem Idesa is operating at 70-75% capacity utilization. PE MARKET WOES As a PE producer, Braskem Idesa remains exposed to the global downturn in polymers prices due to oversupplies. Plata said the downturn has been a “very hard” period for polymers producers, who may still face 12 more months of downturn. In its latest financial statement for the first quarter, Braskem Idesa’s sales fell by 2%, year on year, and the company posted a net loss. Earnings before interest, taxes, depreciation, and amortization (EBITDA) rose. Braskem Idesa (in $ million) Q1 2024 Q1 2023 Change Q4 2023 Change Q1 2024 vs Q4 2024 Sales 229 234 -2% 199 15% Net profit/loss -85 1 N/A -101 -16% EBITDA 36 26 36% 26 39% PE sales volumes (in tonnes) 205,500 195,100 5.4% 174,500 17.8% “We have had a very complex environment, with increased capacities in the US or China and with the war in Ukraine raising our production costs. We are undoubtedly in a down cycle and as a company we have tried to take care of our margins by controlling our costs and look closely at our investments,” said Plata. He said he “would not have the answer” about what to do with China’s dumping of product around the world, a fact that in Brazil, the largest Latin American economy, has prompted chemicals trade group Abiquim to lobby hard for higher import tariffs in polymers, as well as dozens of other chemicals. “Market analysts predict the current cycle may come to an end in the second half of 2025. Let’s hope so… This has been such a long crisis, aggravated by external factors such as wars and global convulsions, which undoubtedly also affect the industry, and the environment remains very uncertain.” Front page picture: Braskem Idesa’s facilities in Coatzacoalcos Source: Braskem Idesa Interview article by Jonathan Lopez Next week, ICIS will publish the second part of the interview with Plata, with his views on the challenges and opportunities for the chemicals and manufacturing sectors under the upcoming Administration led by President-Elect Claudia Sheinbaum amid the nearshoring trend

18-Jul-2024

South Korea's SK Innovation to merge with energy affiliate SK E&S

SINGAPORE (ICIS)–SK Innovation, the parent company of battery maker SK On and petrochemicals producer SK Geo Centric, has agreed to merge with its energy affiliate SK E&S in an overhaul to improve its profitability. The two companies are merging in a proactive effort to navigate the challenging external business landscape, characterized by a prolonged global economic downturn, increased volatility in the energy and chemical industries, and a slowdown in the electric vehicle (EV) market, SK Innovation said in a statement on 17 July. "By integrating assets and capabilities across both energy and electrification sectors, the merged company will bolster its core competitiveness and profitability," it said. Additionally, the merger aims to secure competitiveness in future energy business areas. Upon merging, the combined entity will transform into an energy firm with assets totaling Korean won (W) 100 trillion ($72.4 billion) and revenues of W88 trillion, "positioning itself as the largest private energy company in the Asia-Pacific region", SK Innovation said. The merged firm will also increase earnings before interest, taxes, depreciation and amortization (EBITDA) to W5.8 trillion, up from pre-merger levels of W1.9 trillion, it said. The two companies expect that by 2030, the synergies from the integration alone will add over W2.1 trillion to EBITDA, which is targeted to hit W20 trillion by the end of the decade. "Notably, the merged company will be able to mitigate the high profit volatility of the petrochemical business, which has served as a reliable cash cow, with the stable profit generation capabilities of the LNG [liquefied natural gas], power, and city gas businesses," SK Innovation said. The management boards of both SK Innovation and SK E&S approved the proposed merger on 17 July, subject to shareholders’ approval on 27 August. The merged corporation is expected to be officially launched on 1 November. "The merged company will develop a comprehensive portfolio that spans all areas, including energy sources (such as oil, chemicals, LNG, city gas, power, renewable energy, batteries, ESS [energy storage system] hydrogen, SMR, ammonia, and immersion cooling), energy carriers, and energy solutions," SK Innovation said. "Currently, global oil majors are also currently pursuing balanced portfolios across the energy sector through various mergers and acquisitions." SK Innovations' business portfolio includes petrochemicals, lubricants, and oil exploration. It is now diversifying into future energy sectors such as electric vehicle batteries, small modular reactors (SMR), ammonia, and immersion cooling. SK E&S was spun off from SK Innovation in 1999 as a city gas holding company and is transitioning into a green portfolio that organically integrates its four core businesses – city gas, low-carbon LNG value chain, renewable energy, and hydrogen and energy solutions, to create synergies. Separately, SK On's board has approved a merger with sister companies – crude oil and petroleum products trading firm SK Trading International and energy logistics firm SK Enterm to improve raw material purchasing efficiency and expand trading, helping improve SK On's profit structure. "Through the merger of these three companies, SK On will be able to further strengthen its competitiveness in securing raw materials ($1 = W1,380)

18-Jul-2024

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