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China May industrial output growth slows to 5.6% on year

SINGAPORE (ICIS)–China’s industrial output in May increased by 5.6% year on year, slowing from April’s 6.7% growth, official data showed on Monday. Manufacturing expansion decelerated to 6.0% in May, from 7.5% in the previous month, according to China’s National Bureau of Statistics (NBS). Mining output posted a faster growth of 3.6% in May from 2.0% in April, while the utilities sector registered a slower expansion of 4.3% from 5.8% in the previous month. Out of the 41 Chinese industries, 33 reported output gain in May, down from 36 in April. The three sectors with highest output growth in May were computer, communication and other electronic devices manufacturing (14.5%); chemical raw material and finished products manufacturing (12.7%); and railway, vessel, aviation and other transportation equipment manufacturing (11.8%). For the first five months of 2024, China’s industrial output expanded by 6.2% year on year, slower than the 6.3% pace in January-April. China is the world’s second-biggest economy, whose recovery is being dragged down by an ailing property sector. Thumbnail image: At a special cable products factory in Huzhou, China, on 12 June 2024. (Costfoto/NurPhoto/Shutterstock)

17-Jun-2024

LOGISTICS: Container rates rise on peak season surcharges, but rate of growth slowing

HOUSTON (ICIS)–Rates for shipping containers continue to surge as carriers are implementing peak season surcharges while capacity remains tight from Red Sea diversions, but some shipping analysts think there are signs that the dramatic rate of growth may be slowing, which leads off this week’s logistics roundup. CONTAINERS Shipping container rates continued to rise this week, but the rate of increase slowed, according to data from supply chain advisors Drewry and as shown in the following chart. Ocean freight rates analytics firm Xeneta said its data indicates spot rates on major trades out of Asia will increase again on 15 June, but to a less dramatic extent than witnessed in May and early June. Average spot rates from Asia to US West Coast are set to increase by 4.8% on 15 June to stand at $6,178/FEU (40-foot equivalent unit). However, on 1 June, rates on this trade increased by 20%. From Asia into the US East Coast, rates are set to increase by 3.9% on 15 June to stand at $7,114/FEU. Again, this is a far less dramatic jump than when rates increased by 15% on 1 June. Rates from north China to the US Gulf are at the highest this year but leveled off this week, as shown in the following chart. “Any sign of a slowing in the growth of spot rates will be welcomed by shippers, but this is an extremely challenging situation, and it is likely to remain so,” Xeneta chief analyst Peter Sand said. “The market is still rising, and some shippers are still facing the prospect of not being able to ship containers on existing long-term contracts and having their cargo rolled.” 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 TANKER RATESUS chemical tanker freight rates assessed by ICIS were mostly unchanged. However, rates were lower from the US Gulf (USG) to India and unchanged from the USG to the Caribbean. From the USG to Asia, the market has gone overall quiet after a few busy weeks in the month of May. The spot market faces headwinds as activity has been slow, causing spot space to pile up for July, placing downward pressure on spot rates. Recent force majeures in the USG have caused some COA vessels to look for additional cargoes, adding pressure to rates. Market participants are optimistic that freight rates for larger parcels will stabilize in the near term. US PORT OPERATIONS Operations at US ports are stable even as import volumes are at the highest since 2022, and railroad performance has improved over the past month, according to analysts at freight forwarder Flexport. Nathan Strang, director of ocean freight, US Southwest for Flexport, said that apart from the Port of Charleston, South Carolina, volumes are moving really well through the East Coast ports with rail dwell averaging about two days. Charleston is undergoing an infrastructure project on its Wando Welch Terminal to expand the docks. Dock construction at Wando Welch terminal started on 11 March, reducing berth space from three to two berths for one year, with berths given on first come, first serve basis. Strang said some vessels are discharging at the Port of Savannah, Georgia, and then moving material to Wando Welch via trucks, or using other terminals within the Port of Charleston as space becomes available. Overall port omissions from all carriers are starting to reduce the extent of the delays, with six to nine days delay expected in week 24, according to a port update from Hapag-Lloyd. RAILROADS Strang said Flexport customers are seeing lower dwell times for rail cars at ports over the past month. “I have been talking about how rail performance to and through the West Coast has been suffering a little bit,” Strang said, describing his point of view in past webinars. “I will say that we have seen real improvement.” Strang said West Coast port operations have remained stable, with local pick-up dwell at six days for Los Angeles/Long Beach, at five days in Seattle/Tacoma (SeaTac) and at four days in Oakland. For the first 23 weeks of 2024, ended 8 June, North American chemical railcar loadings rose 3.8% to 1,082,614 – with the US up 3.9% to 745,780. In the US, chemical railcar loadings represent about 20% of chemical transportation by tonnage, with trucks, barges and pipelines carrying the rest. PORT OF BALTIMORE OPENS The Fort McHenry Federal Channel – the entrance to the Port of Baltimore – is fully reopened just 11 weeks after a container ship lost power and struck the Francis Scott Key Bridge, causing its collapse and essentially shutting the port. The Unified Command (UC) said salvage crews successfully removed the final large steel truss segment blocking the 700-foot-wide Fort McHenry Federal Channel on 3-4 June. Deep-draft commercial vessels have been able to transit the port since 20 May when the UC cleared the channel to a width of 400ft and depth of 50ft. Following the removal of wreckage at the 50-foot mud-line, the UC performed a survey of the channel on 10 June, certifying the riverbed as safe for transit. 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). PANAMA CANAL The Panama Canal Authority (PCA) is offering an additional booking slot for the Neopanamax locks as of 11 June, increasing the total number of daily canal transits to 33, and is also raising the maximum authorized draft based on the current and projected level of Gatun Lake. The PCA will open an additional slot on 8 July, which will bring the total number of daily transits to 34. Because of the improved water levels now that the rainy season has arrived, the PCA is also increasing the maximum authorized draft for vessels to 14.02 meters (46.0 feet). This is the second increase in draft restrictions over the past few weeks. 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. The tracker is only for non-booked vessels in the queue and shippers should consider two additional days as a minimum to estimate transit times for unscheduled vessels, the PCA said. Focus article by Adam Yanelli Additional reporting by Kevin Callahan

14-Jun-2024

Higher import tariffs one leg of wider plan to save Brazil’s besieged chemicals producers – Abiquim

SAO PAULO (ICIS)–Proposals to sharply increase chemicals import tariffs are only one of the three aspects Brazil’s chemicals producers have proposed to the government to save their "besieged” operations, according to the CEO at trade group Abiquim. Andre Passos added that the industry has also proposed to the government a structural plan to reduce natural gas prices in Brazil as well as a US-style, IRA-type stimulus plan for the chemicals chain, completing a plan to help chemicals producers which remain, he said, operating at historically low rates. Abundant and low-priced chemicals imports have been making their way to Brazil for several months, with domestic producers facing stiff competition and losing market share. China has been the main country of origin, but Passos said also pointed to the US, Russia, or Saudi Arabia. In May, chemicals producers – via Abiquim but also as individual companies – proposed increasing tariffs in more than 100 chemicals, most of them from 12.6% to 20%, in a public consultation held by the Brazil’s government body the Chamber of Foreign Commerce (Camex). A decision is expected in August as the latest. Abiquim represents only chemicals producers, but not distributors; Brazil’s polymers major Braskem, which is 36.1% owned by the state-owned energy major Petrobras, has a commanding voice in the trade group. Other trade groups in the chemicals chain, such as Abiplast, representing plastics transformers, do not support higher tariffs as most of their members import product to meet their demand. Soon after Abiquim met with Brazil’s President Luiz Inacio Lula da Silva in May, as part of their lobbying to prop up chemicals producers’ operations, Abiplast and several other trade groups also demanded a meeting with Lula to lobby for their case of not raising import tariffs. NOT ONLY TARIFFSPassos was keen to stress that higher tariffs were only one part of producers’ proposals to the government and emphasized the measure has been proposed to be in place for one year. In May, a source in Brazil’s chemicals said to ICIS that simply proposing higher tariffs, without addressing other productivity and global competitiveness issues in an industry mostly based in commodity chemicals production, was the result of “business mediocrity”. Passos was not having it. “What is a showing of mediocrity is not to understand this [higher import tariffs] is a proposal to be in place for only one year, in the face of a situation where chemicals producers are operating at rates of 62-64% and where the survival of several chemicals chains is being jeopardized,” he said. “What we have presented to the government is the need to undertake action on three main fronts: in the short term, import tariffs, but in the medium and long term we also need a structural plan to address natural gas prices, which are seven times higher in Brazil than in some other jurisdictions, as well as a stimulus plan covering the whole chemicals production chain.” Brazil’s natural gas prices have hovered around $14/MMBtu during the past months. That compares to a price of around $2.5/MMBtu at times in the US, although this week prices surpassed the $3/MMBtu mark in that country. The chemicals industry can use natural gas-based ethane as one of its building blocks, which has allowed the US’ chemicals industry to thrive after the shale gas boom. In Brazil, most steam crackers run on crude oil-based naphtha. According to Passos, with the adequate regulatory framework and a helping hand from Petrobras, prices could come down considerably in Brazil. To that aim, the energy major and Abiquim signed a memorandum of understanding (MoU) earlier in 2024 to explore potential agreements on natural gas supply to chemicals. Abiquim says the sector is Brazil’s largest consumer of natural gas, coping 25-30% of supply, and therefore government-controlled Petrobras could do more to help. Petrobras has always focused on crude oil production, with most of the natural gas extracted in its operations reinjected back into the system. Passos said Abiquim and Petrobras should be announcing concrete action on natural gas in coming weeks. Moreover, Petrobras said in May it was to restart construction work on its gas processing unit in Itaborai, called Gaslub and also known as Rota 3. The project’s construction, started in the early 2010s, fell victim to the wide-ranging corruption scandal Lava Jato in which Petrobras was a central part. “Currently, Brazil’s crude oil sector is well regulated and is one of the country’s success stories. We need the same for natural gas. When Gaslub is started up, 18 million of cubic meters (cbm)/year will come into the market. We are forecasting there could be gas oversupply within two years, although this of course depends on other variables as well,” said Pasos. “Barring disruption to supply from Bolivia, or a potential severe drought which would lower hydraulic electricity production [having to use natural gas to produce it], we are forecasting that with the adequate regulatory framework and Gaslub functioning, natural gas prices could come down considerably in the medium-term.” Passos was keen to stress how Braskem’s steam cracker in Rio de Janeiro’s Duque de Caxias facilities, which runs on natural gas-based feedstocks, is operating, exceptionally, at an approximately 85% operating rate. This shows, he went on to say, how even with high prices more supply of natural gas is indispensable for chemicals producers to increase their competitiveness. He also said the fiscal burden chemicals procures in Brazil endure stands at 43%, versus 20% in the US, according to Abiquim’s estimations. Work there, he said, could also be done. STIMULUS  Passos said the government must contemplate a plan for the chemicals industry following the example of the US’ Inflation Reduction Act (IRA), which has propelled large investments in green energy projects, propping up the chemicals industry along the way. He conceded the US’ resources are larger than Brazil’s but said that the government has already showed it can design plans to prop up specific economic sectors, and mentioned the example of the Mover program for the automotive industry. Earlier this week, Brazil’s Congress finally approved the plan, proposed in December. In the best Brazilian style, members of parliament (MPs) introduced amendments which graphically are known as “jabuti” (turtle): amendments to a bill which are little related to the spirit of the bill itself. In Brazil’s strong balance of powers, MPs can greatly delay the passing of bills, like Mover. “We have presented to the government the need for an IRA-like, Mover-style plan for the chemicals industry, for all elements in the production chain: basic chemicals as well as chemicals of first, second, and third generation,” said Passos. “Brazil has been able to destine Brazilian reais (R) 19.3 billion [$3.6 billion] for automotive – it can do the same for the important chemicals industry, which creates so many jobs in the country.” Finally, Passos said that before the severe floods affecting Rio Grande do Sul in May – which brought havoc to one of Brazil’s most industrialized states – demand and manufacturing activity was healthier than in 2023, overall, although that improvement had not benefitted any of Abiquim’s members: higher demand for chemicals was being met by imports, he said. On Monday (17 June), the second part of this interview will be published, with Passos' views on Brazil’s response to the floods. Passos is a gaucho himself – as people from Rio Grande do Sul are called – and said the authorities' response to the disaster had been decent, adding he had been humbled by the response of civic society across Brazil. ($1 = R5.36) Front page picture: Braskem's Duque de Caxias facilities in Rio de Janeiro Source: Braskem Interview article by Jonathan Lopez ($1 = R5.36)

14-Jun-2024

BLOG: China could still become entirely petrochemicals self-sufficient despite EVs impact on refineries

SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson: China has set itself a target that 40% of all the vehicles on its roads will be electric by 2030. And by that year, the aim is that all new-vehicle sales will be electric vehicles (EVs). The country wants to reach peak carbon emissions before 2030 and carbon neutrality before 2060. “After 2030, it is going to be pretty much impossible to get approval for a heavy industry project because of the emissions targets,” said a petrochemicals industry source. This has led to suggestions that the resulting lower availability of feedstocks from local refineries will slow China’s push towards complete petrochemicals self-sufficiency. I disagree for the following reasons. Despite a cap on local refinery capacity, I’ve been told that local supply of naphtha, etc shouldn’t be a problem until up to a least 2030, because refineries will be increasingly turned in petrochemicals feedstock centers. More naphtha and gasoil crackers are expected to be added to refineries ahead of the 2030 cut-off point. Other heavier fractions from refineries are also forecast to be increasingly used as petrochemicals feedstocks. And even if local feedstock supply does become constrained after 2030, we shouldn’t assume that this will restrict domestic production because of the weaker-tonne economics of importing raw materials. China’s closer geopolitical relationships with the Middle East, along with increased availability of natural-gas liquids in the Middle East, suggest that imports of feedstocks will be available at the right costs. My view is that China’s economic challenges will result in annual average petrochemicals consumption growth of 1-3% per year up until 2030. Beyond 2030 I see growth falling to around 1%. Weaker demand growth will of course make it easier to increase petrochemicals self-sufficiency. Because recycling is mainly a “local for local” business due to the restrictions on moving plastic waste across borders growth of recycling in China will, in my view again, increase the country’s self-sufficiency in polymers. Recycling is exactly the type of higher-value industry China needs to nurture as it attempts to escape a middle-income trap made very deep by its demographic challenges. Security of local supplies of raw materials in an ever-more uncertain geopolitical world will add further momentum to the growth of recycling in China. Local virgin polymer and petrochemical plants will run at high operating rates, supported by maximising supply of feedstocks from local refineries and by competitive imports of feedstocks from China’s geopolitical partners. This will further boost supply security. Don’t be therefore distracted by suggestions that the growth of EVs in China and the country’s emissions targets will be good news for petrochemical exporters to China. China will become a vast continent-sized market that will be just about entirely self-sufficient. As I shall explore in a later post, this will apply to specialty as well as commodity grades of petrochemicals. Overseas producers most focus on markets elsewhere. As the chart below shows using high-density polyethylene (HDPE) as an example, the opportunities in other countries and regions are big. China lifted all petrochemicals boats during the 1992-2021 Supercycle, making even the least-competitive companies successful. This is no longer the case. 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.

14-Jun-2024

LOGISTICS: US port ops stable amid heavy imports; rail performance improves over last month

HOUSTON (ICIS)–Operations at US ports are stable even as import volumes are at the highest since 2022, and railroad performance has improved over the past month, according to analysts at freight forwarder Flexport. RAILROADS Speaking during a webinar to discuss the state of freight, Nathan Strang, director of ocean freight, US Southwest for Flexport, said its customers are seeing lower dwell times for rail cars at ports over the past month. “I have been talking about how rail performance to and through the West Coast has been suffering a little bit,” Strang said, describing his point of view in past webinars. “I will say that we have seen real improvement.” Strang said West Coast port operations have remained stable, with local pickup dwell at six days for Los Angeles/Long Beach, at five days in Seattle/Tacoma (SeaTac) and at four days in Oakland. “Trucking and transload capacity remain good out of all US West Coast ports,” Strang said. Rail traffic has risen for 19 consecutive weeks, with railcar loadings for the week ended 8 June up 5.7% year on year according to the Association of American Railroads (AAR). For the first 23 weeks of 2024, ended 8 June, North American chemical railcar loadings rose 3.8% to 1,082,614 – with the US up 3.9% to 745,780. In the US, chemical railcar loadings represent about 20% of chemical transportation by tonnage, with trucks, barges and pipelines carrying the rest. PORTS Strang said that apart from the Port of Charleston, South Carolina, volumes are moving really well through the East Coast ports with rail dwell averaging about two days. Charleston is undergoing an infrastructure project on its Wando Welch Terminal to expand the docks. Dock construction at Wando Welch terminal started on 11 March, reducing berth space from three to two berths for one year, with berths given on first come, first serve basis. Strang said some vessels are discharging at the Port of Savannah, Georgia, and then moving material to Wando Welch via trucks, or using other terminals within the Port of Charleston as space becomes available. Overall port omissions from all carriers are starting to reduce the extent of the delays, with six to nine days delay expected in week 24, according to a port update from Hapag-Lloyd. ASIA PORTS CONGESTED Strang said that things are opposite of the conditions seen during the pandemic, when US West Coast ports were dealing with huge backloads and major congestion because of the strong US consumer demand for goods. “Shanghai and Singapore are seeing the most congestion right now, but most ports within Asia are seeing pretty heavy congestion,” Strang said. Carriers are even omitting Singapore on certain services because of the amount of congestion in Singapore, Strang said.

13-Jun-2024

INSIGHT: Chem M&A outlook brightens amid surge of deal announcements

HOUSTON (ICIS)–Chemical companies have started the first half of 2024 announcing potential sales and separations of several businesses, which could lead up to busy cycle for mergers and acquisitions (M&A). Sustainability continues to influence M&A decisions, although it will unlikely lead to any large acquisitions. Private equity firms could play a larger role in M&A despite higher interest rates because financial investors have plenty of money. Electronic materials could be another M&A trend because of government incentives for the semiconductor industry. CHEMS EXPECT MORE M&AMore than half of the chemical executives who participated in a survey expect M&A activity to increase in the next 12-18 months, according to Kearney, a consulting firm that conducts an annual report about deal-making in the industry. By contrast, 18% expect M&A activity to decrease, and 32% expect activity to be roughly stable. The sentiment is more positive than surveys from the past few years, said Andy Walberer, partner and global chemicals lead at global strategy and management consultancy Kearney. He made his comments while discussing Kearney's recent M&A report. Part of that optimism comes from the divestment plans and strategic reviews recently announced by chemical companies, he said. Also, executives at chemical companies are no longer contending with the COVID-19 pandemic and the subsequent supply-chain disruptions. They have the headspace to think about medium- and long-term strategy, he said. SUSTAINABILITY CONTINUES INFLUENCING DEALSSustainability will unlikely lead to high-dollar deals, but it will still be a noteworthy trend, Walberer said. Chemical companies are scrambling to secure supplies of recycled and renewable feedstock. Chemical executives and Kearney have noted the gap between supply and demand for sustainable feedstock. To secure feedstock, companies have been establishing partnerships or acquiring businesses. Walberer expects that trend to continue. In other cases, chemical companies are making sustainability M&A decisions in response to government incentives and regulations, Walberer said. Kearney has seen some companies divest sections of portfolios because of high carbon emissions, Walberer said. PRIVATE EQUITY HAS PLENTY OF DRY POWDERHigher interest rates have made M&A more challenging for private equity firms because of their traditional reliance on debt-financed acquisitions. That said, private equity firms have built up large stashes of dry powder. They could put that money to work without debt, which has become more expensive because of higher interest rates. At the same time, chemical valuations have fallen. "We see PE very active," Walberer said. Walberer noted that financial investors made up 26% of chemical deals in 2023, up from 7% in 2022 and above the historic range of 15-20%. In particular, private equity firms may acquire some of the infrastructure assets that chemical companies are eager to divest. Dow had expressed interest in selling more of its infrastructure after agreeing to divest its rail assets at six sites in mid-2020. Recent and upcoming carveouts could provide private equity firms with more M&A opportunities. In December 2023, Solvay carved out its specialty business, called Syensqo, from its mostly commodity business. DuPont expects to complete its breakup into three companies in the next 18-24 months. CHANGING OUTLOOK FOR EUROPEEuropean chemical M&A experienced a slowdown because of the spike in energy and feedstock costs that followed the start of the war in Ukraine, according to the Kearney report. It should continue declining in the next 12-18 months before a possible rebound. "Amid ongoing challenges, big chemical players are under stress, prompting them to review their business models and restructure," Kearney said in a report regarding Europe. In some cases, the owner of a business may decide to put it on the market after realizing it is no longer a core part of the company, Walberer said. The corporation concludes that it is no longer the best owner of the business and decides to divest it. "There are a lot of good examples of how new owners have been able to improve the performance of the business," he said. DuPont's performance coatings business would later flourish as Axalta Coatings Systems. which was initially sold to Carlyle for $4.9 billion before becoming a publicly traded company. Another example is Nouryon, the surfactants business that was spun off from AkzoNobel. In other cases, the business's performance has suffered because of structural reasons, such as high costs, Walberer said. GOVERNMENT SEMICONDUCTOR INCENTIVES MAY DRIVE M&AElectronic materials could become another M&A trend because of the incentives being lavished by government, Walberer said. The US, China, the EU, Japan, Germany and South Korea are among the countries that created semiconductor incentive programs worth billions of dollars. DuPont's electronics business is one of the three that will break out of the company. That business itself is the product of acquisitions made by DuPont. CHEM M&A ACTIVITY OVER THE YEARSTypically, the value of chemical M&A is $100 billion to $120 billion per year, a level it reached in 2022 and 2023, Walberer said. The COVID pandemic and its subsequent recovery distorted M&A in 2020 and 2021. Values in 2019 and 2016 spiked because of large deals such as the Dow and DuPont merger and Aramco acquiring a large stake in SABIC. ANNOUNCEMENTS IN 2024The following lists some of the major chemical M&A announcements made so far in 2024. February 26: PPG explores strategic alternatives for its architectural coatings business in the US and Canada. It could reach a decision by the end of the third quarter. March 4: Evonik agrees to sell its superabsorbents business to International Investors Group (ICIG). March 13: Trinseo seeks to sell its stake in Americas Styrenics. It later clarified that the entire joint venture is for sale. May 6: BASF plans to sell its idled ammonia, methanol and melamine units in Ludwigshafen, Germany. May 8: LyondellBasell starts strategic review of the bulk of its operations in Europe. May 8: Shell agrees to sell its refinery and petrochemical assets in Singapore to the CAPGC joint venture. May 22: DuPont plans to break up into three companies, including one focusing on electronics and another on water. Insight article by Al Greenwood Thumbnail image by ICIS.

13-Jun-2024

Mexico’s petchems supply flowing despite Altamira disruption, but industry crisis could continue

SAO PAULO (ICIS)–The drought affecting the Altamira petrochemicals hub in Mexico’s state of Tamaulipas is not yet affecting the supply of chemicals, but the water restrictions for industrial players could continue, sources said this week. The modest rainfall in the past few days has not resulted in any great improvement in water supplies, with households still suffering water restrictions. Supplies to industrial players will only resume when supply for households is normalized. Earlier this week, Mexico’s chemicals producer Alpek declared force majeure on supply of purified terephthalic acid (PTA) out of Altamira. The producer has the capacity to produce 1 million tonnes/year in two plants at the petrochemicals hub. Sources in the US PTA and polyethylene terephthalate (PET) markets have said they fear disruptions to supply if the crisis in Altamira continues. In May, the critical situation affecting water supply to residents in the area prompted authorities to halve water supply to industrial players, with many of them declaring force majeures thereafter. This week, a well-connected source in the Mexican petrochemicals industry limited the current crisis, for now, to production issues, with supplies of all materials still flowing. “What we are hearing in the market is not about shortages – for now, it is limited to a production problem,” the source said. “A lot of US product also comes to Mexico, so for now there is no supply problem as such. However, everything will depend on how long it takes for this to be resolved so industry can return to normal production.” Weather patterns developing normally, Mexico’s east coast should be entering the rainy and hurricane season soon, which could start to ease Altamira’s drought. However, with residents in the area still suffering water restrictions in their homes, normalization in water supplies to industrial players should still take some time. The light rain in the past few days, however, may already be starting to show positive effects. Last week, local media in Altamira reported how the Champayan lagoon, west of the city and a natural spot very much loved by the locals, had dried up overnight. On 11 June, residents woke up to a lagoon with water again. ELECTIONS STOLE FOCUS FROM DROUGHTMexico concluded on 2 June an electoral process which kept political parties’ focus away from the drought developing in Tamaulipas, said the source in Mexican petrochemicals. “Altamira is located in an area which doesn’t lack water. The drought became a perfect storm on the back of the authorities’ poor response. In an election year, instead of investing resources to reverse the drought situation months ago, those resources went to the electoral campaigns,” it said. “Having so much water in the area, they could have installed pumps in certain rivers to transfer water to other rivers, which could have solved the situation preventively. They are pumping water now, but now turned out to be too late for industrial players. In addition to the drought, the campaign had the greatest impact in the current crisis.” Last week, the government of Tamaulipas ordered that tanker trucks be sent to the south of the state from other municipalities not affected as harshly by the drought, as well as from other Mexican states. The trucks will not sort out the dire situation at industrial parks, however, because the water is being deployed to households only. The latest report by the public body in Mexico monitoring the drought, published on 5 June and covering up to 31 May, continued showing the state of Tamaulipas in the Gulf Coast as one of the hot spots suffering the current crisis. MEXICO DROUGHT MONITORTamaulipas (east) suffers ‘exceptional drought’ amid a nationwide crisis Color scale: Yellow, abnormally dry; light orange, moderate drought; orange, severe drought; red, extreme drought; brown, exceptional drought Source: Mexico’s National Water Commission, part of the National Meteorological Service. See more here, in Spanish Front page picture: The Port of Altamira, Mexico’s state of Tamaulipas Source: Altamira Municipality Focus article by Jonathan Lopez

13-Jun-2024

INSIGHT: China slams EU over EV tariffs; trade war brewing

SINGAPORE (ICIS)–China has slammed EU’s proposal to impose provisional tariffs on imports of Chinese electric vehicles (EVs), denouncing it as a "blatant act of protectionism”, raising concerns that a trade war between Asia’s biggest economy and a new western front is brewing. EU tariffs on Chinese EVs to rise to 27-48% Retaliatory measures from China likely EU imports of China cars surge sevenfold over three years "The European side has disregarded facts and WTO [World Trade Organization] rules, ignored China's repeated strong opposition, and ignored the appeals and dissuasion of multiple EU member state governments and industries," China’s Ministry of Commerce said in a statement issued late on 12 June. The European Commission on 12 June notified Chinese automakers, including EV giant BYD, Geely, and state-owned SAIC Motor Corp, that it will impose additional provisional tariffs of 17% to 38% on imported Chinese EVs from around 4 July. These will be applied to existing 10% tariffs imposed on all Chinese EVs, with the final rate determined by each carmaker's level of cooperation with EU's anti-subsidy investigation launched in September last year. NEW FRONT FOR TIT-FOR-TAT TRADE WAR China’s commerce ministry has urged the EU to "immediately correct its wrong practices" and "properly handle trade frictions through dialogue and consultation". The ministry said it will "resolutely take all necessary measures to firmly defend the legitimate rights and interests of Chinese companies". "This move by the European side not only harms the legitimate rights and interests of the Chinese electric vehicle industry but will also disrupt and distort the global automotive industry chain and supply chain, including the EU," it said. The EU's move follows the US' tariff hikes announced last month on Chinese imports of EVs, batteries and other materials, starting 1 August. In 2018, then US President Donald Trump initiated a trade war with China by imposing tariffs on Chinese imports to address alleged trade imbalances, intellectual property theft, and unfair trade practices. China retaliated with tariffs on US goods, escalating tensions between the two biggest economies in the world. While reviews by the US and EU on Chinese goods were under way, Beijing launched in May an anti-dumping investigation into imported polyoxymethylene (POM) copolymer, also known as polyformaldehyde copolymer – a key material in electronics and automotive manufacturing. China's commerce ministry alleged that the plastic is being sold below market value, harming domestic producers. The probe, targeting imports from the US, EU, Taiwan, and Japan, could last up to 18 months and is seen as a direct response to their recent trade barriers against Chinese goods. In the case of Taiwan, China has also suspended tariff concessions on 134 more products from the island, including base oil, chemicals, and chemical products, citing Taiwan’s supposed violations of the Cross-Strait Economic Cooperation Framework Agreement (ECFA) with the mainland. Meanwhile, Japan’s tightened export controls on 23 types of semiconductor manufacturing equipment that took effect on July 2023 was deemed in line with restrictions imposed by the US and the Netherlands, potentially hindering China's access to advanced chipmaking technology. China may issue further retaliatory measures, potentially impacting global supply chains and escalating trade tensions with major economies in the west. The automotive industry is a major global consumer of petrochemicals that contributes more than one-third of the raw material costs of an average vehicle. The automotive sector drives demand for chemicals such as polypropylene (PP), along with nylon, polystyrene (PS), styrene butadiene rubber (SBR), polyurethane (PU), methyl methacrylate (MMA) and polymethyl methacrylate (PMMA). CHINA 2023 CAR EXPORTS TO EU SURGE China’s exports of automobiles to the EU have surged over the past year, particularly in the battery electric vehicle (BEV) segment, according to Nomura Global Markets Research. Cars produced in China accounted for 20% of all BEV registrations in the EU during the first two months of 2024, it said, citing data from automotive business intelligence firm JATO Dynamics. An analysis of January-April 2024 sales figures from China’s top three EV manufacturers in the EU, however, suggests that their overall presence in the region is still nascent, Nomura noted. In 2023, EU’s imports of Chinese EVs surged to $11.5 billion, more than sevenfold increase from $1.6 billion in 2020, according to think thank Rhodium Group. China accounted for 37% of EU’s total EV imports last year, it said. In the first quarter of 2024, about 40% of China’s EV exports or 145,002 units went to Europe, according to official customs data. Focus article by Nurluqman Suratman Thumbnail image: An electric car at a charging station near the European Commission building in Brussels, Belgium. (Xinhua/Shutterstock)

13-Jun-2024

German auto industry opposes EU tariffs on EVs from China

LONDON (ICIS)–Germany’s auto industry is opposed to tariffs on electric vehicles (EVs) from China, trade group German Association of the Automotive Industry said on Wednesday. The group, known as VDA in its German acronym, was reacting to a European Commission proposal of tariffs on battery electric vehicles (BEVs) from China after an investigation concluded they benefited from unfair subsidies. VDA said the proposed tariffs were not the right tool to strengthen the competitiveness of Europe’s auto industry. Instead, the tariffs would further escalate the risk of trade conflicts, to the detriment of Germany’s automakers, it said. “The fact is that we need China to solve global problems,” in particularly in dealing with the climate crisis, it said. China played a crucial role in a successful transformation towards electromobility and digitalization, and a trade conflict would jeopardize this transformation, the group said. However, VDA added that the extent of the subsidies China grants EV makers was “a challenge” for Europe and it called on China to make “constructive proposals” to settle the dispute. Germany ranks first in Europe and second after China globally in terms of EV production, and the bulk of German EV production goes into export, according to VDA data released this week. Industry observers have noted that Germany-based EV production relies on imports of materials and batteries from China. The US last month announced tariff hikes on Chinese imports of EVs, batteries and other materials, starting 1 August. In related news, the business climate in Germany’s automotive industry deteriorated in May amid fears about impacts on German automakers from the conflict with China, according to a recent survey by Munich-based ifo research. The automotive industry is a major global consumer of petrochemicals that contributes more than one-third of the raw material costs of an average vehicle. The automotive sector drives demand for chemicals such as polypropylene (PP), along with nylon, polystyrene (PS), styrene butadiene rubber (SBR), polyurethane (PU), methyl methacrylate (MMA) and polymethyl methacrylate (PMMA). Additional reporting by Graeme Paterson Please also visit the ICIS topic page Automotive: Impact on chemicals Thumbnail photo shows a Volkswagen EV; photo source: Volkswagen

12-Jun-2024

Canada rail labor union to hold new strike ballot

TORONTO (ICIS)–Canadian rail labor union Teamsters Canada Rail Conference (TCRC) will hold a new strike vote because an earlier mandate for industrial action will expire on 30 June, it said in an update. In early May, about 9,300 unionized conductors, train operators and engineers at rail carriers Canadian National (CN) and Canadian Pacific Kansas City (CPKC) voted for a strike as early as 22 May. However, Canada’s federal labor minister then referred the matter to the Canada Industrial Relations Board (CIRB) for a decision about a strike’s impacts on public safety and health. A legal strike or lockout cannot occur until a CIRB decision, and it is unclear when that decision will be made. TCRC said in its update that under Canadian labor law, the strike mandate from May is set to expire on 30 June. In order to be in a position to strike once the CIRB makes its decision, TCRC will therefore conduct a new strike ballot, beginning 14 June and running until 29 June, it said. WHEN COULD A STRIKE START?As the CIRB process is ongoing, the board has extended the deadline for affected industry trade groups to make submissions from 31 May to 14 June. After the CIRB decision, TCRC would have to give 72 hours’ notice before a strike can begin. The CIRB may grant the rail carriers’ request for a 30-day extension, starting from the decision date, before the 72-hour notice can be served. The rail carriers have estimated that given the CIRB process, a strike will not start before mid-to-end July. The parties do not have to wait for the CIRB process to run its course. Instead, they can continue bargaining and reach an agreement at any time. However, TCRC said that since the strike was referred to the CIRB, the rail carriers “have completely withdrawn any commitment to negotiate”. The rail carriers have proposed binding arbitration, but TCRC has rejected this. IMPACT ON CHEMICALS The uncertainties around the timing of rail labor disruption are affecting Canadian chemical, fertilizers and other manufacturers. Canadian chemical producers rely on rail to ship more than 70% of their products, with some exclusively using rail, while in the fertilizers industry about 75% of all fertilizers produced and used in Canada is moved by rail. In the run-up to potential strikes, producers need to prepare, longer strikes can force them to curtail production or shut down plants, and after a strike ends it can take weeks for normal operations to resume. The impacts may be limited to some extent as the CIRB can order that rail shipments of certain essential products, for example water treatment chemicals, be maintained during the strike. Thumbnail photo source: Canadian National

12-Jun-2024

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