Base oils

HOUSTON (ICIS)– Producer Agrimin Limited said their Mackay Potash project in Western Australia is now advancing towards a final investment decision. In an update on quarterly activities the company said it continues to focus on their project which is planned to be able to manufacture standard and granular sulphate of potash (SOP) products. Current activities include efforts towards project funding and strategic partnerships, design works, environmental approvals as well as product marketing. The Mackay project is set to undertake sustainable extraction of brine from Lake Mackay using a network of shallow trenches, which will be transferred along trenches into a series of solar evaporation ponds. Raw potash salts will crystallize on the floor of the ponds and be collected by wet harvesters and pumped as a slurry to the processing plant that will refine harvested salts into high quality finished SOP ready for direct use by customers. SOP volumes will be hauled by a dedicated fleet of road trains to a purpose-built storage facility at Wyndham Port. At the port it will be loaded via an integrated barge loading facility for shipment to customers. The project’s definitive feasibility study (DFS) was completed in July 2020 and demonstrated that once in operation it could be the world’s lowest cost source of seaborne SOP. The independent technical review of the DFS was completed in April 2021. The company has signed three binding offtake agreements with Sinochem Fertilizer Macao Limited for the supply of 150,000 tonnes/year, Nitron Group for 115,000 tonnes/year and with MacroSource for 50,000 tonnes/year. Agrimin has already completed site-based testing for the salt harvesters, geotechnical sampling and for the sealed haul road. Additionally, the company has worked with its proposed power contractor to refine the project’s site power station design which has resulted in a hybrid diesel, solar, wind and battery solution. Regarding environmental clearance the company said the project is being assessed by the Western Australian Environmental Protection Authority (EPA) and during the quarter it resubmitted the environmental impact assessment response, which included revised management and monitoring plans. It is still expected that the EPA approval will come during the second half of 2024. Agrimin said it is also progressing other secondary approvals, licenses and agreements which included coverage for mining operations project safety and water regulations.

26-Jul-2024

LONDON (ICIS)–Venezuelans go to the polls on Sunday with the hope of a free and fair election, in which case President Nicolas Maduro is widely expected to lose office in a country where the economy has been battered by years of mismanagement, corruption, and US sanctions. In the crude oil-rich country – Venezuela holds the world’s largest reserves – petrochemicals could naturally develop given the raw materials advantage. Back in the 1990s, with crude oil output at its peak, petrochemicals were tilted as a growing and booming sector in the country. The industry never took off. Since 2001, Venezuela has been run by the socialist PSUV party, first under the late President Hugo Chavez, who died in 2013, and later under his appointee successor, Nicolas Maduro, who won an election in 2018 widely seen as not free: the PSUV-led coalition won 256 out of 277 seats in the National Assembly. Venezuela’s demise has been rapid and deep: practically no institution in the country has been spared from the PSUV taking over it, and the election on Sunday has several times been postponed as Maduro tries to cling onto power for as long as he can. The powerful military are still for the most part rallying behind him. A state of terror has been the norm in the past few years, and the economy took a turn for the worse in the late 2010s and pushed around seven million Venezuelans to flee, mostly to neighboring countries or, those with the means, to countries such as the US or Spain. Sunday’s election is momentous because it has been tilted as one in which Maduro could allow a free vote – but many still fear that is not his nature. But independent opinion polls have consistently showed him trailing behind the unity opposition candidate, Edmundo Gonzalez, a 74-year-old diplomat who managed to avoid, like other opposition candidates before him, being banned from running. PETROCHEMICALSBefore North America renewed its status as a global energy power with the advent of the shale gas boom, crude oil derivatives were – and continue to be in most Latin American countries – the only game in town when it comes to petrochemicals raw materials. In the past 30 years, crude oil output peaked in 2000 at slightly more than 3 million barrels/day, stayed mostly stable under Chavez’s rule at around 2.5 million barrels/day, but has been on a downward trend since, according to data from the US Energy Information Administration (EIA). VENEZUELA CRUDE OIL PRODUCTIONJanuary 2000-July 2023 Million barrels/day Source: US’ Energy Information Administration Currently, Venezuela produces around 700,000 barrels/day. The reserves continue to be there, underground, but the facilities to extract that wealth have also been victims mismanagement and have had little maintenance. In 2023, as the world’s energy sector reeled from Russia’s attack against Ukraine, the US softened some of its sanctions on Venezuela – its crude oil was now more needed than ever – and signed the so-called Barbados Accords, which would imply lifting sanctions in exchange for a free and fair electoral process. Maduro backtracked from his word earlier in 2024 – as he kept banning candidates from the opposition to run in the process – and the US reimposed the sanctions which, in the abyss the country is, are used by the government as the excuse for the country’s malaise. Amid this backdrop over the past decades, the 1990s talk about petrochemicals being a sector which could potentially be a powerful exporter of downstream materials to the rest of the world has all but died. In June, the Venezuelan government said it was mulling building production facilities for petrochemicals and fertilizers together with Turkey’s industrial conglomerate Yildirim, but without giving much detail about timelines or budgets. However, such deals have been signed before and nothing came to fruition out of them. Yildrim had not responded to a request for comment at the time of writing. Meanwhile, in an interview with ICIS in May, an executive at chemicals distributor Manuchar – Belgium-headquartered but focused on emerging markets, with strong presence in Latin America – told the sad fate the company was victim of in the late 2010s. By then, the economy worsened sharply and, with it, security – or the lack of it, rather – created a dangerous country to live in, from Caracas to the provinces. The government’s terror state has included paramilitary groups which have had little regard for their own people. Most of Manuchar’s employees fled the country while they still had the means, and the human resources problem forced the company to basically idle all its facilities there, which remain dormant to this day, said Manuchar’s head for South America, Stefan Van Loock “We still have a legal entity in Venezuela, although it is dormant, and we do not have any sales there since the end of the 2010s. During our last months there, the situation had become untenable: we could not import materials, there were hardly any dollars available, so even if you got the imports, you could not pay for them most times…,” he said. “It was also becoming a human resources problem. I saw many Manuchar colleagues resign: ‘I cannot stay in Venezuela any longer, it has become too dangerous, and I am leaving’. It was a combination of all those factors that made us decide to wind down our operations there. We can only hope things improve.” It is interesting to read this piece published on ICIS in 2013 when Chavez died. At the time, there were still hopes petrochemicals could be developed as the country’s crude oil sector was still worth the name. Little we knew how much the country would quickly deteriorate in the next five years, although the article already hinted at constrains which would only become much bigger later. “Venezuela potentially could attract significant petrochemical industry investment although major industry players have tried and failed in the past to establish footholds in the country,” the article’s author, ICIS expert Nigel Davis, wrote at the time. “State-controlled producer Pequiven has plans to nearly triple its plastics production capacity to 1.86 million tonnes/year in 2016 from 694,000 tonnes/year, although its ability to do so is questioned against the backdrop of feedstock, power, and financing constraints.” And looking further into the archives, even with Chavez in power, companies across the world such as major ExxonMobil wanted to tap into Venezuela’s petrochemicals. In this agreement from 2004, the US energy major and domestic producer Pequiven was mulling a 50:50 joint venture to build a $2.5-3 billion petrochemicals complex – once again, it never got to break ground. HOPE LAST THING TO LOSEMillions of Venezuelans abroad are following the electoral campaign and, for the most part, are hoping their compatriots at home go and vote em masse on Sunday: the polls have consistently and overwhelmingly showed Maduro behind, so if a free election is held, the Chavismo may be coming to and in a few months. The structures it leaves behind will take years to dismantle, anyway, and success in building a fairer and freer Venezuela is not guaranteed. Even this week, as he sees his position threatened, Maduro rallied supporters with a violent rhetoric which raised alarms across Latin America: he said that if his party does not win the election, there could be a bloodbath. Even Brazil’s President Luiz Inacio Lula da Silva, normally shy in openly criticizing Maduro as he has a worrying tendency to flirt with far left and authoritarian leaders in the region, was blunt about his feelings. "I was shocked by Maduro's statement that if he loses the election, there will be a bloodbath … Maduro has to learn that when you win, you stay; when you lose, you leave and prepare to run again in the next election," said Lula, quoted by Brazil’s public news agency Agencia Brasil. Lula has sent to Venezuela his personal adviser on foreign policy, Celso Amorim, as part of international delegations who are to be observers in the election. Jose Marquez, a Venezuelan journalist exiled in Buenos Aires, said Sunday’s election could be the last chance to put Maduro out of office, calling on his compatriots to vote em masse against Maduro. “There are people who emigrated who are right now traveling to Venezuela just to vote on Sunday. The fact that there are people in the country who decide not to vote, perhaps in the last opportunity to remove Maduro from power, is disappointing but, above all, very sad,” said Marquez. Front page picture: Facilities operated by PDVSA Source: PDVSA Insight by Jonathan Lopez

26-Jul-2024

LONDON (ICIS)–BASF is moving to “de-risk” its exposure to the electric vehicles sector in response to slowing market dynamics, CEO Markus Kamieth said on Friday, pausing or deciding against several investments connected to the industry. Take-up of electric vehicles has slowed in most markets other than China, Kamieth said, prompting the company to shift strategy, with new capacities added only where BASF has obtained long-term offtake agreements. “We are confident that the trend toward electric vehicles will continue and that battery materials remain a significant growth opportunity for the chemical industry,” Kamieth said, speaking at a press conference at BASF’s Ludgwigshafen, Germany, headquarters. “However, recent dynamics have changed, and the market penetration of electric vehicles has slowed down significantly outside of China, as shown by a number of announcements by companies in the e-mobility value chain,” he added. The company decided against proceeding with a mooted nickel-cobalt refining complex in Indonesia last month, on the back of shifting nickel market dynamics that are likely to make long-term supply of battery-grade material easier to source. “The supply options have evolved and with that BASF’s access to battery grade nickel. This decision will significantly lower future capital requirements,” Kamieth said. Kamieth, who became CEO of the company in April this year, also moved to pause work on a proposed commercial-scale electric vehicle battery recycling metal refinery at its Tarragona, Spain, complex. To be based on technology developed and tested at BASF’s Schwarzheide, Germany, refinery and with a potential investment range of €500 million to 700 million, the company announced that the project was under consideration in February. Uncertainty also continues at BASF’s Harjavalta, Finland, precursor cathode active materials (PCAM) plant, which has been locked in a cycle of granted environmental permits that are then overturned on appeal. The company recently obtained fresh operation permits for the site, but those could also be overturned, according to Kamieth. “A few weeks ago, we received the approval to operate the site as requested,” he said. “The proviso is that there can be protests against this approval again.” The project, which was yet to receive final investment decision, will remain on hold “until cell capacity build-up and the [electric vehicle] adoption rate in Europe regain momentum,” Kamieth said. The current shift is “a short-term stretching of a growth curve that will inevitably be very large”, he said, due in part to the investment step-changes required in fast-scaling markets that regulatory or investment fears can delay. “We believe that the trend towards electromobility as the powertrain technology of the future is still valid. We also believe that the growth in battery materials is going to be very substantial, and the biggest growth opportunity for that probably right now exists in the chemical industry,” he added. Thumbnail photo source: Shutterstock

26-Jul-2024

SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson. Earlier this week I suggested that there would be no end to the petrochemicals downcycle until 2026. But what if this isn’t just a normal downcycle? What if we see no return to the old petrochemical market conditions because of long-term shifts in the global economy due to the end of the China “economic miracle”, ageing populations in most of the world, the sustainability push and the impact on economies of climate change? Might artificial intelligence lead to such a large loss of employment that petrochemicals demand growth takes a further hit? In as little as three years’ time, in handy bullet points, this is what the petrochemicals world could look like: There is sufficient petrochemical supply already available to meet demand as global demand is shrinking. As China is said to be some 45% of global petrochemicals and other manufacturing capacity, and because it is so plugged into global supply chains, this is one of three locations where we are seeing some petrochemicals capacity growth. China is adding more capacity, where it can find sufficiently competitive feedstocks, for supply security reasons. The other locations are the Middle East because of its feedstock advantages, now improving because of more natural-gas liquids discoveries, and the US where government policy continues to support manufacturing. Major consolidation is taking place elsewhere to accommodate this new supply and shrinking demand. Petrochemical plant closures are taking place in Europe, South Korea, Singapore, Japan, and possibly even Southeast Asia. When electrification of vehicles took off, excitement began over petrochemicals demand replacing lost oil demand into transportation fuels. Good look with that idea as petrochemicals demand is, as mentioned, actually shrinking. Can you afford just one scenario, one plan? No, of course. Everything points to a much more ambiguous future than the comfortable and predictable petrochemicals world see enjoyed during the 1992-2021 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.

26-Jul-2024

SINGAPORE (ICIS)–Typhoon Gaemi slammed into Fujian province in southern China on the evening of 25 July, bringing heavy rains as it continues to move inland on Friday, with the strong downpour expected to last three days. At 06:00 local time (22:00 GMT), Gaemi has weakened into a tropical storm and is centered at Yongtai County in Fuzhou City, according to China's Meteorological Administration (CMA) in its latest update. Gulei, which is a major chemical production site in Fujian, is not in the direct path of Typhoon Gaemi. No disruptions to production were reported. According to China's CCTV state news channel, Gaemi struck Fujian province at 19:50 local time on 25 July and is projected to cause widespread heavy rainfall across the country as it tracks northwest path. An orange typhoon warning has been issued, the second-highest level in China's four-tier warning system. The storm is expected to pass through Jiangxi province and continue to move north, gradually weakening in intensity. Heavy rains and strong winds are expected to batter eastern China from 26 to 27 July, with coastal areas and the East China Sea forecast to experience gale-force winds. Authorities in Fujian province initiated a mass evacuation, relocating more than 150,000 people from vulnerable areas ahead of Gaemi's arrival. Transportation services across the region have been severely disrupted, with train services suspended in parts of Fujian and most flights canceled at Quanzhou Jinjiang International Airport. Schools and offices have also been shuttered in many parts of Fujian province. The impact of Typhoon Gaemi has extended beyond Fujian, with Zhejiang province experiencing ferry suspensions and flight cancellations. Guangdong province has also canceled many eastbound train services in anticipation of the storm's arrival. PORT OPERATIONS AFFECTED Numerous ports along China's eastern seaboard have been closed, ferry services halted, and vessels ordered back to shore, according to crisis management firm Crisis24. The berthing of chemical and oil vessels in Ningbo is being controlled due to safety or environmental concerns, according to a shipping broker. There are restrictions in place for vessels mooring in Ningbo, possibly due to congestion or maintenance, the broker said. Vessels navigating the south channel of Zhangjiagang port must have a freeboard of more than four meters due to shallow water or strong currents, according to the broker. The north channel of Zhangjiagang was closed due to strong winds that occurred early on 25 July, causing safety concerns or difficulties for navigation, the broker said. Dense fog was also present in the Dalian area, causing navigation difficulties or reducing visibility, according to the broker. In Taiwan, the southern port city of Kaohsiung was particularly hard hit by Gaemi, with meteorologists reporting 135 centimeters (53 inches) of rainfall and extensive flooding after it made landfall shortly before midnight on 24 July. Kaohsiung is home to two major oil refineries belonging to Formosa Petrochemical Corp (FPCC) and CPC Corp that are connected to downstream petrochemical facilities. There have been no immediate reports of major disruptions to petrochemical production facilities in Kaohsiung. Meanwhile, operations at the Mailiao port are expected to resume on Friday after a three-day shutdown. The port is operated by Taiwanese major Formosa Petrochemical Corp (FPCC) which primarily serves the company’s Mailiao refinery and petrochemical complex. Taiwan's major petrochemical complexes are in Toufen and Mailiao in the northwest; and Ta-sheh and Linyuan in Kaohsiung City in the south. Separately, a Philippine-flagged oil tanker carrying 1.4 tonnes of industrial fuel oil sank amid inclement weather on 25 July, prompting fears of an oil spill. The MT Terra Nova sank near Lamao Point in Limay, Bataan, a province northwest of the capital, Manila, early on 25 July, the Philippine Coast Guard said. Sixteen crew members were rescued and at least one person died, it added. While the Philippines was spared a direct hit from Gaemi, the storm exacerbated seasonal monsoon rains, leading to extensive flooding in Metro Manila and surrounding areas. Additional reporting by Hwee Hwee Tan and Fanny Zhang

26-Jul-2024

BARCELONA (ICIS)–European petrochemical leaders should take inspiration from Japan, which is further ahead in reducing base chemicals while expanding in specialties and low carbon technologies. Japan hit by with high naphtha feedstock costs, growing global overcapacity 70% of crackers are more than 50 years old More than 10% of Japan’s crackers could close Downstream production also closing such as polyethylene terephthalate (PET) and paraxylene (PX) Japan basic chemicals losing ground, new focus on specialties Pushing materials for semiconductors, electronics Also expanding into bio-naphtha and pyrolysis oil Japanese companies want to licence their chemicals technologies Using ammonia and hydrogen to reduce dependence on LNG South Korea chemicals face existential crisis In this Think Tank podcast, Will Beacham interviews ICIS senior market development manager Itaru Kudose, ICIS senior consultant Asia John Richardson 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.

25-Jul-2024

SINGAPORE (ICIS)–South Korea's economy posted a slower second-quarter annualized growth of 2.3% compared with the 3.3% pace set in the preceding quarter amid sluggish domestic consumption, preliminary central bank data showed on Thursday. Q2 private consumption rose by 0.9% year on year, slowing from the 1.0% expansion in the first three months of 2024, the Bank of Korea (BoK) said in a statement. Manufacturing for the period rose by 4.5%, slowing from the 6.5% growth registered in January-March; while exports grew at a slower pace of 8.7% compared with the 9.1% expansion in the first three months of the year. On a quarter-on-quarter seasonally adjusted basis, the South Korean economy unexpectedly shrank by 0.2% in April-June, reversing the 1.3% growth posted in the first three months of this year. "We had expected South Korea’s GDP to slow sharply, but not to the point of falling into contraction territory," Dutch banking and financial information services provider ING said in a note. Q2 domestic growth components were weak except for government spending, which rose by 0.7% quarter on quarter, it said. Private consumption, construction, and facility investment dropped by 0.2%, 1.1% and 2.1%, respectively, The downside surprise came mainly from trade, as imports grew faster than exports, ING said. Q2 export growth moderated to 0.9% quarter on quarter, just half the 1.8% increase posted in Q1. Exports in Q2 were supported by higher shipments of chemicals and motor vehicles. Meanwhile, import growth rebounded to 1.2%, compared with a contraction of 0.4% in Q1, mainly buoyed by higher imports of crude oil and petroleum products. "Given the weaker-than-expected second quarter 2024 GDP, we have revised the annual GDP outlook downwards from 2.6% year-on-year to 2.3%," ING said. "We recently warned that the BOK would face challenges in its monetary policy decision as inflation cools towards 2% and sluggish domestic growth supports a rate cut, but at the same time, concerns about rising household debt are growing." In its latest forecast in May, the BoK raised its 2024 GDP growth forecast to 2.5% from 2.1% previously amid strong exports driven by robust chip demand. For inflation, the forecast average was unchanged at 2.6% for this year.

25-Jul-2024

Trading activity on Romanian exchange surges year on year BRM expects further expansion with Trayport Joule platform launch and NEMO day-ahead market Bourse eyes Bulgarian market but project delayed LONDON (ICIS)–Romanian commodities exchange, BRM, has laid out internal and regional expansion plans as trading liquidity on its platforms has doubled year on year. The exchange has seen a surge in activity in the first half of 2024 compared to the same period last year, with 13.2TWh changing hands on the spot and forward gas platforms. The number of registered participants has also increased from 130 to 150 over the same period and BRM expects a further rise thanks to ongoing expansion plans. Speaking to ICIS, Gabriel Purice, BRM’s director general, said BRM was completing a decade-long battle to become a nominated electricity market operator (NEMO) for the spot electricity markets. The company already launched its electricity intra-day market at the end of May, which means that under the NEMO designation the outfit is integrated with similar EU platforms. The next step is to launch in November the day-ahead electricity market, which will also operate under the NEMO designation. The NEMO electricity day-ahead and intra-day markets are supported by BRM partner, Nord Pool. Purice said the infrastructure is ready for launch but added that additional preliminary checks would need to be carried out in line with NEMO requirements. “The intra-day platform already has 30 registered participants but we expect more people to join once we are in a position to offer the full day-ahead and intra-day package,” he said. BRM first applied to become a NEMO spot electricity market operator in 2013 but had faced numerous internal challenges, including restrictive domestic regulations which required all electricity transactions to be carried on the state-owned platform OPCOM. The restrictions were eventually lifted, following a number of court cases mounted by BRM and subsequent legal changes at domestic and EU level. In a separate move, BRM is now preparing to offer from September access to the Trayport Joule platform, which provides integrated solutions for traders active on multiple markets. He said the Joule platform would run alongside the supporting infrastructure already operated by BRM and would include standardised products for electricity and natural gas contracts. REGIONAL EXPANSION Purice said BRM is also active regionally, having launched BRM East Energy, now renamed BRM East, a subsidiary, in Moldova in April. Since then, 29GWh have changed hands and there are 13 registered participants, according to BRM data. Traded volumes are expected to rise from 2025 as Moldova has introduced an obligation for gas suppliers to secure volumes on the open market. The director general said the exchange is looking to launch a day-ahead gas trading platform but the project depends on Moldova setting up a balancing market first. Balancing markets are a critical component of the spot market which facilitate accurate settlements. BRM also eyes Bulgaria where it applied for a licence earlier in March, hoping to offer clearing services, which the country is yet to implement. However, Purice said the application is being held up, noting the regulator DKER has recently asked BRM to provide proof of a signed agreement with the Bulgarian gas grid operator Bulgartransgaz to access their nominations platform. Purice said the agreement should be submitted after the licence is granted. DKER did not reply to questions by publication time. Bulgaria’s local Balkan Gas Hub exchange is actively used by regional traders, particularly for volumes entering the market from Turkey and sold locally. At the end of June it said it had partnered up with Hungary-based clearing house Keler CCP to offer central counterparty clearing services.

24-Jul-2024

EGPC seeks another five LNG cargoes Local industry restarts, power cuts suspended Egypt to bring in up to 26 cargoes over summer LONDON (ICIS)–Egypt is in the market for another five LNG cargoes as the country continues to address declining domestic gas production and soaring summer demand. Egyptian General Petroleum Corporation (EGPC) has issued a TTF-linked DES tender covering 13-14 and 25-26 August and 3-4, 12-13 and 21-22 September delivery windows, traders said on Wednesday. The two cargoes for delivery in August and the middle cargo in September would be delivered to Egypt’s Ain Sukhna terminal, while the first and third September cargoes would be sent to Jordan’s Aqaba terminal for further pipeline delivery. The tender closes on 29 July at 12:00 noon Cairo time and is valid to 18:00 on the same day. This is the fourth LNG tender round Egypt has issued covering the summer period this year, as the country has been forced to turn from LNG exports to imports. EGPC has previously been in the market seeking a total of 22 cargoes in three separate rounds. All cargoes were reported to have been awarded, expect for the 1-2 September cargo in a two-cargo tender that closed on 22 July, one trader said. If the latest tender is fully awarded, this could bring a total of 26 spot cargoes into Egypt from mid-June to mid-September. UREA PRODUCERS RESTART Latest data from association JODI shows a continued decline in domestic gas production. Average May production was around 138 million cubic meters (mcm)/day, down from 142mcm/day in April and 163mcm/day in May 2023. However, the flow of LNG seems to have brought some relief to local industry. Some Egyptian urea producers shut down for a day last week but then restarted, sources said, with one source attributing the ramp up to LNG imports. Five cargoes have been delivered since the start of July, according to ICIS data. As of this week, urea plants in Egypt are running at around 80% capacity on average. “I believe this will [be sustained] till the end of summer period,” a urea source said. “Heard also that old electricity stations have started to work with fuel oil as an alternative [for] gas,” they added. Only one of Abu Qir’s prilled urea lines is down, while its other two lines are running as normal. The government has also suspended its electricity load-shedding program from 21 July until mid-September, as recently announced by Prime Minister Mostafa Madbouly. The Prime Minister said the power cuts halted after the arrival of some LNG cargoes. The cuts were introduced last summer and resulted in daily two-to-three hour power cuts across most of the country. Additional reporting by Deepika Thapliyal.

24-Jul-2024

SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson. Conventional wisdom suggests that the petrochemicals cycle may have bottomed out as the prospects of interest rate cuts increase. There are signs of recovery in the Europe. And even in a high inflationary environment, the US consumer kept on spending with unemployment at record lows. This, in my view, is a misreading of the data. Because of the disproportionate influence of China, what happens elsewhere doesn't really matter in the short- to medium-term. China had a 22% share of the global population in 1992 and a 9% share of global polymers demand. By the end of this year, ICIS forecasts that China’s share of the global population will have slipped to 18%, but its share of global polymers demand will have risen to 40%. Too much global capacity was planned on the basis of China’s petrochemicals demand growth being at 6-8% per annum over the long term, whereas 1-4% now appears to be more likely. China’s petrochemicals capacity growth was underestimated because of cost-per-tonne economics used to assess projects. History teaches us is that national strategic objective also come into play. One can argue, as the Rhodium Group does in an 18 July 2024 research paper, that China’s economic growth may never return to previous levels. This would mean no return to the double-digit annual growth rates we saw in petrochemicals demand during the Petrochemicals Supercycle. In today’s main chart, I kept to our base case assumptions on global polypropylene (PP) virgin production growth between 2024 and 2030, which is almost the same as demand growth. I then manually reduced capacity growth until I got back to the historically very healthy operating rate of 87% (operating rates being production divided by capacity). (What applies to PP applies to other petrochemicals and polymers. The ICIS data for other products suggest similar steep reductions in capacity growth versus our base to get back to the long-term history of operating rates). This led me to the conclusion that global PP capacity growth would need to be just 1.6m tonnes a year versus 5m tonnes a year under our base case. Under our base case, we see global operating rates averaging just 76% in 2024-2030. Capacity growth of just 1.6m tonnes a year versus our base case would require substantial capacity closures in some regions. Closures are never easy and take considerable time because links with upstream refineries, environmental clean-up and redundancy costs – and the reluctance to be the “first plant out” in case markets suddenly recover. The sale of rationalisation suggested by just 1.6m tonnes a year of capacity growth therefore suggests no full recovery in PP and in other petrochemicals until, I am guessing, 2026. 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.

23-Jul-2024