Epoxy resins

SAO PAULO (ICIS)–The likely increase in Brazil’s import tariffs for dozens of chemicals will start improving beleaguered domestic producers’ poor margins even though petrochemicals prices remain low, according to an analyst at US credit rating Fitch. Marcelo Pappiani, credit analyst for Brazilian chemicals producers, added that imports into Brazil and the wider Latin America remain high and are likely to continue that way as China and the US work through their overcapacities. Despite that, prices have stabilized, albeit at low levels, and “the worst of this downturn” seems to have subsided, said Pappiani. The two largest chemicals producers in Brazil, polymers major Braskem and chlor-alkali and polyvinyl chloride (PVC) producer Unipar, are covered by Fitch. The two companies have posted several quarters of poor financial results on the back of low prices and competition from overseas producers. TARIFFS UPBrazil’s chemicals producers – represented by trade group Abiquim, in which Braskem has a commanding voice – were hoping the Brazilian cabinet would increase import tariffs on dozens of chemicals in September. However, there have been contradictory reports on this, with some expecting the hike to be approved as soon as Wednesday (18 September), while other reports citing government sources have said the decision would be pushed back to December. The increases would follow a public consultation earlier this year in which Abiquim as well as individual companies proposed increasing tariffs in more than 100 products, most of them from 12.6% to 20%. Braskem is, at the same time, partly owned by the country’s state-owned energy major Petrobras, so the Abiquim/Braskem lobbying tandem tends to find open ears in the corridors of power in Brasilia under the current government, which has committed to expand the industrial sector. Pressure not to increase import tariffs has also been strong from other sectors, not least plastic transformers represented by Abiplast, but the producers’ proposals are expected to have won the day. “Petrochemicals prices in Brazil and the wider Latin America seem to have reached the bottom and we are seeing slightly less pressure on companies, despite of course still imports coming into the region in big numbers, from China, the wider Asia and the US,” said Pappiani. “Companies have lobbied the government strongly for an increase in import tariffs as well as other measures to prop up the chemicals industry. Import tariffs seem set to increase and that should soon make Brazilian producers more competitive.” Pappiani is in no doubt higher import tariffs in several chemicals – when around half of the Brazilian industry’s demand is covered imports – are likely to translate into higher prices for consumers, precisely the reasoning used by those who oppose the hike. “President Lula has said he wants to foster the chemicals sector and has met on several occasions with CEOs from the industry as well Abiquim,” said Pappiani. “But, of course, consumers will end up paying for higher import tariffs – this happens in all economic sectors, not just petrochemicals, of course.” COMPETITIVENESS THROUGH TARIFFSAs well as higher prices for consumers, those opposing the hike in import tariffs argue that Brazilian petrochemicals producers should speed up their modernization and diversification, so they are not as dependent on government policy for their profitability. Pappiani said Braskem is a well-managed company with international assets which would make it a profitable enterprise even without government measures which prop up its competitiveness in its domestic market. However, critics of protectionist measures continue their campaign against the increase in import tariffs, although according to most analysts the dice has been cast. On Tuesday, the president of Abiplast published a charged article in Brazil’s daily Estadao in which he wondered if Braskem would always need state indirect help to keep afloat, even if its second largest shareholder is Petrobras, which in theory should make accessing cheaper raw materials easier. “Why are foreign suppliers of petrochemical products able to be more competitive in their exports to Brazil, even bearing the costs of transportation, logistics and exposure to exchange rate variations? Over the past 40 years, we have exported many of these products to China; if the Chinese (and other countries) become competitive by importing Brazilian oil, why can't Brazilian [petrochemicals] producers become competitive?” said Jose Ricardo Roriz Coelho. “The exaggerated protection of the few petrochemical companies in Brazil results in them directing investments to countries where they face greater competition in order not to lose market share. Europe, which is not competitive due to its lack of raw materials for petrochemicals, has chosen to add value further down the production chain by importing resins from countries that are more efficient in production. “Structural problems, such as insufficient supply of inputs, cannot be solved with short-term remedies. The debate on new tariffs and the production chain is crucial,” concluded Roriz. Indeed, the prospect of high import tariffs being approved as soon as this week has already propped up Braskem’s market capitalization in the past few weeks. On 13 September, for instance, the company’s stock rose by nearly 8% as investors expect an imminent decision on the increase in import tariffs, according to a report by InfoMoney. The increase in import tariffs could automatically translate into higher earnings before interest, taxes, depreciation, and amortization (EBITDA) for Braskem, to the tune of $300 million/year, according to some analysts. Under current business conditions, that would be roughly the same EBITDA amount the producer posted in the second quarter of this year. “In our view, this additional tariff would help contain Braskem’s cash burn in recent quarters. The company would then be better positioned to capture a future cycle of increases in petrochemical spreads,” said analysts at XP cited by InfoMoney. Front page picture: Facilities operated by Brazilian polymers major Braskem in the state of Sao Paulo Source: Braskem Interview article by Jonathan Lopez 

17-Sep-2024

HOUSTON (ICIS)–As the US recycled polyethylene terephthalate (R-PET) market continues to develop and new players establish supply relationships across members in the value chain, pricing mechanisms have shifted significantly over the course of the last 5+ years. Historically, R-PET pricing was linked to virgin pricing, but at a deficit, meaning recycled resins were expected to be cheaper than virgin. Now, the tables have turned, particularly for sought after "sustainability-driven" grades of recycled resin which typically command a premium to virgin due to the tight supply and high demand of these higher quality, clear resins. Pricing for these grades of recycled resins has shifted within the R-PET industry, such that pellet prices are largely based on their own feedstock and production costs. While spot pellet pricing is subjected to the additional lens of local supply and demand, including substitution with imports or cheap virgin, contract pellet pricing is now largely based off of bale feedstock formulas, with some contracts specifying individual step inputs, and others specifying the bale index and then an adder to represent the processing cost. Eventually, the market may move to a uniform indexed pellet price, settled on a routine frequency by the market, similar to how R-PET pricing is established in Europe, or how other commodity resin prices are established in the US, such as polyethylene (PE). Within the ICIS US R-PET commodity services, two new price series have been introduced which represent food grade pellet pricing calculated via a formula, starting with bale feedstock costs. While each contract will have unique formula inputs which are largely kept private, the following prices are meant as an indicator of average pellet pricing based on formula, as this can vary significantly from active spot market transactions – depending on the current market supply and demand. There is one assessment for the East Coast and one for the West Coast based on various bale feedstocks. The formula is listed below: [([(Bale price indicator + bale freight ) ÷ bale yield] + bale to flake processing costs) ÷ flake yield] + flake to pellet processing costs = pellet price Formula input descriptors: Bale price indicator: What quality (curbside or deposit) and region (East Coast vs West Coast) descriptors are used for selecting base pricing for bale feedstock costs in relation to the type most often used by local recyclers. Bale freight: Cost to transport material from bale producer (typically material recovery facility (MRF)) to bale buyer (typically the recycler/reclaimer). Bale yield: Factor to account for loss of material due to contamination within the bale; Curbside bales have higher contamination levels and thus lower yields. Bale to flake processing costs: Associated production costs from sorting, washing, grinding processes, including but not limited to facilities costs, utilities, labor, etc. Flake yield: Factor to account for loss of material due to contamination from flake to pellet stage. Flake to pellet processing costs: Associated production costs from pelletization, including but not limited to facilities costs, utilities, labor, etc. The numeric input values were gathered from market participants, with median values used among responses. The inputs are subject to change pending further feedback or market cost changes, such as the recent inflation of production costs within the last ~2-4 years. This price excludes delivery costs of the final pellet. This price also excludes explicit margin adders, though some processing costs may include inherit margin depending on the processing yield fluctuation. For more information on these new series, or to share feedback, please contact Emily Friedman at Emily.friedman@icis.com.

16-Sep-2024

BARCELONA (ICIS)–New analysis suggests the chemical industry may face a more rapidly aging and shrinking population in key markets such as China, while the subsequent drag on demand means new business models will be required. China-driven petrochemicals supercycle is over China’s population may be aging and shrinking more quickly than previously thought China may switch to become net exporter of many synthetic resins Demographic shifts will shrink demand for chemicals throughout developed world Developing world faces challenges which may slow growth New business models will be required to create opportunities from these trends In this Think Tank podcast, Will Beacham interviews Nigel Davis and John Richardson from the ICIS market development team and Paul Hodges, chairman of New Normal Consulting. Editor’s note: This podcast is an opinion piece. The views expressed are those of the presenter and interviewees, and do not necessarily represent those of ICIS. ICIS is organising regular updates to help the industry understand current market trends. Register here . Read the latest issue of ICIS Chemical Business. Read Paul Hodges and John Richardson's ICIS blogs.

03-Sep-2024

SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson. Chemical companies, as my ICIS colleague Kevin Swift and I write in today’s blog, need “to write their own story”. This can only come from a much more rigorous approach to scenario planning from the C-Suite level down that needs to then permeate to every decision at every level of an organisation, from long-term investment planning right down to even month-by-month pricing and production- volume decisions. And key to building proper scenarios, now that the Chemicals Supercycle, is understanding demographics as demographics are chemicals demand destiny. Chemicals demand is of course the number of people multiplied by per capita consumption. Because of the increasing uncertainty about the rate at which most of the world’s population is going to age and shrink, one set of scenarios on future population levels makes no sense at all. Front and centre of the global demographics crisis is China given that in 2024, ICIS expects China to drive 40% of the world’s polymers demand from just 18% of the global population. There is a huge variance in estimates of China’s population decline that you simply must factor in. For example, China’s population may decline to 767 million by 2100 or just 373 million! Kevin’s scenario modelling on China’s demographics and its polymers demand is an important starting point for your boardroom discussions: Under the ICIS Base Case, major resins demand rises from 103.1 million tonnes in 2020 and starts to mature in the 2030s, reaching 188.6 million tonnes in 2050. After 2050, a falling population and evolving market/economic dynamics adversely affect demand, which falls to 89.3 million tonnes in 2100. This is a level consistent with pre-2020 demand. With a more pessimistic outlook on population and reduced economic dynamism under the Dire Demographics scenario, major resins demand rises from 103.1 million tonnes in 2020 and starts to mature in the 2030s, reaching 116.2 million tonnes in 2050. With a falling population and adverse economic dynamics, demand falls to 38.7 million tonnes in 2100, a level consistent with pre-2010 demand. Equally important is consideration of what these demand outcomes could mean for China’s polymers trade flows: The Base Case suggests China remains a net importer of major resins, but its net import position falls from 27.4 million tonnes in 2020 to 4.7 million tonnes in 2050. We only focus on the period to 2050. Under the Dire Demographics scenario, production is more than sufficient and by early-2030s China attains self-sufficiency in these resins and emerges as a net exporter of 3.6 million tonnes in 2035, 7.1 million tonnes in 2040, 9.7 million tonnes in 2045 and 11.6 million tonnes in 2050. Please write your own story by conducting the right kind of planning for a far more nuanced and uncertain chemicals world. Editor’s note: This blog post is an opinion piece. The views expressed are those of the author, and do not necessarily represent those of ICIS.

30-Aug-2024

CHARLOTTE, North Carolina (ICIS)–August started with reports of high weekly initial unemployment claims, a weak manufacturing PMI reading and a lackluster payroll report. Equity markets did not react well to this as evidenced by a three-day sell off. But the panic ended, a rebound ensued and we are back to where we were on 31 July as the underlying economic fundamentals of a late-phase business cycle remain. The economy is slowing, not falling off a cliff. Job creation continues, even after the softer showing in July and the unemployment rate ticking up to 4.3%, largely the result of Hurricane Beryl. In the latest JOLTS (Job Openings and Labor Turnover) report, there are 1.2 job openings per unemployed, which is down from a year ago. Overall labor market supply and demand relationships appear to be moving back towards pre-pandemic levels. With a still positive labor market, incomes are holding up for consumers and providing support for the US economy. The headline July Consumer Price Index (CPI) was up 2.9% year on year, the lowest comparison since March 2021. Progress on disinflation continues and inflation is heading back towards the Fed’s target. Economists expect inflation to average 3.1% this year, down from 4.1% in 2023 and 8.0% in 2022. This is still above the Fed’s target. Inflation should soften to 2.4% in 2025 and 2026. As a result, interest rate futures overwhelmingly expect the Fed to cut rates in September. Turning to the production side of the economy, the July ISM US Manufacturing Purchasing Managers' Index (PMI) registered 46.8, down 1.7 points from June and a reading that was below expectations. A March expansionary reading had ended 16 months of contraction in manufacturing, but since then the readings have been contractionary. Overall manufacturing production contraction deepened. New orders slipped further into contraction, and order backlogs and inventories contracted at a faster pace. Only five of the 18 industries expanded. The ISM Services PMI rebounded 2.6 points to 51.4, a slightly expansionary reading. The Manufacturing PMI for Canada remained in contraction (15 months and counting) during July while that for Mexico contracted slightly after nine months of expanding. Brazil’s manufacturing PMI expanded for a seventh month. Euro Area manufacturing has been in contraction for 24 months. The UK PMI, however, expanded for a third month. China’s manufacturing PMI retreated below breakeven levels, ending eight months of positive readings. This is indicative of a stalling recovery. Turning to the demand side of the economy, light vehicle sales rose in July and although inventories have moved up in recent months, they still remain low. We expect light vehicle sales of 15.7 million this year before improving to 16.2 million in 2025. We expect sales of 17.2 million in 2026. This would bring activity back to the last cyclical peak in 2018. Housing activity continues to be tepid amid affordability issues and low builder confidence. We expect that housing starts will average 1.39 million in 2024 and 1.45 million in 2025. We expect housing activity to improve to 1.50 million in 2026. Demographic factors will support housing activity during the next five or more years. There is significant pent-up demand for housing and a shortage of inventory. Affordability continues to be an issue. Retail sales have been lackluster so far this year, but the July results were positive, aiding to the strength in equity markets. Sales at food services and drinking places remain positive. Consumers are taking on more debt. Overall consumer spending may be slowing but remains positive. Business fixed investment, led by a need to boost productivity and reshoring initiatives, will take over from consumer spending as a driver of the US economy. This is typical of a late-stage business cycle. Taking all of these demand and supply considerations together, it appears that downstream activity is improving and that the severe destocking cycle is ending. A restocking cycle for major resins is emerging. US real GDP rose 5.8% in 2021 and then slowed to a 2.5% gain in 2022. The much-anticipated recession failed to emerge for a variety of reasons, and in 2023 the economy expanded 2.5% again. US economic growth in H1 2024 has been strong but is likely to slow, and when it is all said and done, 2024 growth will likely be another 2.5% gain. This pace is well above long-term growth potential. The slowdown in quarterly economic activity suggests that in 2025, the economy should rise 1.8% over average 2024 levels, followed by a modest 2.0% gain in 2026. The US is once again outpacing the other advanced nations. Led by the UK and the Mediterranean nations, Europe’s economic prospects appear to be improving. China struggles with soft economic activity and appears to be exporting its way out of its stalled recovery.

26-Aug-2024

MUMBAI (ICIS)–India will continue imposing antidumping duties (ADDs) on chlorinated polyvinyl chloride (CPVC) imports originating from China and South Korea. The ADDs apply to CPVC resins as well as compounds, with rates ranging from $593/tonne to $792/tonne, depending on origin and producer, according to India's Ministry of Finance. They are set for five years and can be revoked or amended, if necessary. S.No Country of origin Country of export Producer Type Amount in ($/tonne) 1 China Any country including China Any CPVC resin 790 2 China Any country including China Any CPVC compound 605 3 Any country other than China and Korea China Any CPVC resin 790 4 Any country other than China and Korea China Any CPVC compound 605 5 Korea Any country including Korea Hanwha Solutions Corp CPVC resin 593 6 Korea Any country including Korea Hanwha Solutions Corporation CPVC compound 792 7 Korea Any country including Korea Any producer other than mentioned above CPVC resin 593 8 Korea Any country including Korea Any producer other than mentioned above CPVC compound 792 9 Any country other than China and Korea Korea Any CPVC resin 593 10 Any country other than China and Korea Korea Any CPVC compound 792 Source: India Ministry of Finance India’s anti-dumping duties on CPVC imports from China and South Korea were initially imposed on 26 August 2019 for a period of five years. These measures have been extended following recommendations by the designated authority to protect the domestic industry. It was determined that dumping and injury to Indian manufacturers were likely if the existing measures were not extended.

26-Aug-2024

TORONTO (ICIS)–As the unprecedented work stoppage at both of Canada’s freight railroads began on Thursday at 00:01 Eastern Time, it remains unclear how or when it may end as the government is reluctant to intervene. Long-awaited rail shutdown starts Government reluctant to intervene Industry warns of economic and public health impacts Following lockout and strike notices, more than 9,000 workers at railroads Canadian Pacific Kansas City (CPKC) and Canadian National (CN) were locked out at midnight, labor union Teamsters Canada Rail Conference (TCRC) and the rail companies confirmed. TCRC said that the parties were still far apart in their negotiations but added that it would remain at the bargaining table. CPKC called on the government for binding arbitration to end the dispute, but Canada’s federal labor minister last week already rejected a similar call by CN. Speaking to Canadian public broadcaster CBC/RDI a few hours before the rail shutdown began, minister Steven MacKinnon said that the government would rely on the collective bargaining process to resolve the dispute, which is about wages, benefits, work scheduling and safety issues. Collective bargaining was “a tried-and-true method” that helped create prosperity for Canadian companies and workers and build the country over decades, he said. “It works when people put the work in that is required to get a deal, to make those compromises at the table, and those are the most enduring results, and that’s our plan, that’s the only plan,” the minister said. Asked about using “back-to-work legislation” to end the dispute, he noted that Parliament is currently not sitting. However, the government was "always prepared for any eventuality”, he indicated but did not provide details. INDUSTRY SAYS GOVERNMENT MUST ACT NOW Canadian and US trade groups, including the US Chamber of Commerce, have called on the Canadian government to step in and end the dispute, potentially through binding arbitration, or if need be, back-to-work legislation. The two railroads each day ship goods worth more than Canadian dollar (C$) 1 billion (US$735 million), and the shutdown threatens to shut down the country's entire economy and harm trade with the US, the groups said. Bob Masterson, president of trade group Chemistry Industry Association of Canada (CIAC), said that the rail disruption was no longer an ordinary labor dispute that could be resolved through bargaining between two parties, with the government standing on the sidelines, but rather involved important public safety and health issues. One of the railroads stopped accepting critical chemicals, in particular chlorine and derivatives for use in drinking water, already on 12 August, as it began winding down operations ahead of the work stoppage, and the other railroad stopped accepting those products shortly afterwards, he said. With about 95% of the population relying on treated drinking water, as of 12 August the rail dispute therefore became “the interest of every Canadian across the country”, Masterson said. Due to its dangerous nature, under law chlorine can only be moved by rail, he noted. The country was “on the road to a public health crisis” and municipalities may soon need to issue water boil advisories, “if you don’t interrupt this now and return service on the railways,” he said. “The train towards a crisis is moving, it gets faster and harder to stop every day, and the time to stop it is now, and the only people that have the responsibility and the tools and authority to do so are the government of Canada,” he said. The chemical industry was at the front end of this supply squeeze, “and we want all elected officials to be focused on that”, he added. HARM TO THE ECONOMY In a separate statement to ICIS, trade group CIAC reminded of the impacts of the rail disruption on the overall Canadian economy, the chemical industry, and chemical trade with the US. In Canada, about 80% of chemical production goes into export, with about 80% of those exports going to the US, according to CIAC. At the same time, Canada-based chemical producers rely on rail to ship more than 70% of their products, with some exclusively using rail. US-Canada chemical trade, 2023: Canadian exports of industrial chemicals to the US: Canadian dollar C$18.9 billion, according to CIAC data. Canadian imports of industrial chemicals from the US: C$17.5 billion. More than C$76 million of industrial chemical products move on Canada’s rail network daily, which comes to about C$28 billion a year. Industrial chemicals include basic chemicals, synthetic resins, rubbers and synthetic fibers. Chemicals account for nearly 10% of total Canadian freight rail traffic. Furthermore, the chemical industry’s customers in the automobile, forest products, construction, minerals and other industries rely on rail to ship their products. According to estimates by the Conference Board of Canada, a two-week rail shutdown would result in a C$3 billion loss in nominal GDP this year. A four-week shutdown could lower GDP by nearly C$10 billion in 2024 and result in nearly 50,000 job losses, the board said. The lost income would be felt by households, businesses and government, the board said. Canada’s trucking industry was not a viable alternative to rail as it does not have the required capacity or enough drivers, the board noted. Industry commentators said that the government could not allow the rail stoppage to last more than 7-10 days, after which it would likely need to use back-to-work legislation or binding arbitration to end the dispute. However, binding arbitration takes time, and even with Parliament sitting and working at an expedited pace, it would take a couple of days for back-to-work legislation to become law. In another complication, Prime Minister Justin Trudeau’s Liberal-led minority government relies on support from the left-leaning New Democratic Party (NDP) to keep it in power. The NDP, however, is close to labor unions and has warned Trudeau against imposing binding arbitration or back-to-work legislation. While the work stoppage started on 22 August, its negative impacts for chemical producers and other industries kicked in earlier as they needed to rearrange logistics and prepare for potential plant shutdowns. In the chemical industry, it can be costly to ramp down and restart large petrochemical plants as they are in continuous operation and require a reliable, uninterrupted rail service. Depending on how long a rail disruption lasts, it can take weeks, if not months, for the chemical producers to get production rate back to normal. The following table by the American Association of Railroads (AAR) shows Canadian freight rail traffic, including chemicals, for the week ended 17 August and the first 33 weeks of 2024: (US$1 = C$1.36) Thumbnail photo source: CN Focus article by Stefan Baumgarten

22-Aug-2024

TORONTO (ICIS)–Canada’s federal government needs to exercise its authority and act quickly on the complete freight rail stoppage, set to start midnight at 00:01 Eastern Time, trade group Chemistry Industry Association of Canada (CIAC) said. The simultaneous rail disruption at both of the country’s freight railroads, Canadian National (CN) and Canadian Pacific Kansas City (CPKC), has been looming over the chemical and other industries for months. It was apparent that the rail labor dispute could not be resolved through collective bargaining, CIAC told ICIS in an update on Wednesday. The government therefore should impose binding arbitration, with a prohibition on the right to strike/lockout, the group said. Failing that, parliamentarians could be recalled to pass back-to-work legislation, CIAC said. “We believe it is important for the government to act sooner rather than later to mitigate any impacts to the Canadian economy and the workers who support it, and our trading relationships,” it said. It was government’s and parliament’s role to protect the public interest, from both a public safety perspective and in terms of protecting Canadian workers and businesses broadly from the economic harm that was already being caused by the pending rail stoppage, the group said. As for public safety, CIAC noted in particular the continued rail supply of chlorine to municipalities to ensure safe drinking water. LEARNING FROM THE US Compared with Canada, the US under its Railway Labor Act (RLA), 1926, was more adept at ensuring that railways keep operating during labor disputes, CIAC said. The RLA nearly eliminates the risk of shutdowns while allowing for business and labor to negotiate, the group said. In fact, there have been very few rail labor disruptions in the US over the past 100 years, CIAC said, adding: “Just one, lasting one day.” CIAC is advocating that Canada follow the US approach in order to avoid the near-annual disruptions of Canada’s rail and port infrastructure, it said. CHEMICALS AND RAIL In Canada, about 80% of chemical production goes into export, with about 80% of those exports going to the US, according to CIAC. At the same time, Canada-based chemical producers rely on rail to ship more than 70% of their products, with some exclusively using rail. US-Canada chemical trade, 2023: Canadian exports of industrial chemicals to the US: Canadian dollar (C$)18.9 billion ($13.9 billion), according to CIAC data. Canadian imports of industrial chemicals from the US: C$17.5 billion in 2023. More than C$76 million of industrial chemical products move on Canada’s rail network daily, which comes to about C$28 billion a year. Industrial chemicals include basic chemicals, synthetic resins, rubbers and synthetic fibers. Chemicals account for nearly 10% of total Canadian freight rail traffic. CIAC members see reliable rail services as a key factor in deciding whether to locate a new facility or expand operations in Canada, the group said. Likewise, investors see rail service as essential when they are "looking to Canada to take advantage of our skilled labor and abundant and well-priced natural resources”, it added. CANADIAN POLITICSAlthough the chemical and other industries have repeatedly warned about the impacts simultaneous disruptions at both railroads could have on Canada's weakening economy and on trade with the US, the federal government under Prime Minister Justin Trudeau has yet to act decisively. While CIAC declined to speculate about the reasons for the government’s hesitation, political commentators noted that Trudeau’s Liberal-led minority government relies on the left-leaning New Democratic Party (NDP) to keep it in power. Earlier this week, the NDP, which is close to labor unions, warned Trudeau against imposing binding arbitration or back-to-work legislation, as this would undermine the rail workers’ right to bargain for collective agreements. If the NDP withdraws its support in parliament, the government would fall. In current opinion polls, the Liberals are well behind the opposition Conservatives. Map by Miguel Rodriguez Fernandez Rail labor union Teamsters Canada Rail Conference (TCRC) on Sunday served the required 72-hour strike notice on CPKC, following CPKC’s earlier lockout notice, and CN served a 72-hour lockout notice on TCRC. The railroads continued to wind down operations on Wednesday ahead of the start of the work stoppage on Thursday. Trudeau said in webcast remarks to media on Wednesday that the government was following the issue "extremely closely", adding that it was in the best interest of the railroads and the union to find a negotiated resolution. Federal labor minister Steven MacKinnon, who met with the railroads and TCRC on Tuesday, continues to press for a negotiated settlement of the labor dispute, which is about wages, benefits, work scheduling and safety issues. “Get a deal at the table. Workers, farmers, businesses and all Canadians are counting on it,” he said on social media. MacKinnon last week rejected CN’s call to refer the dispute to the Canadian Industrial Relations Board (CIRB) for binding arbitration. Industry commentators said that the government could not allow the rail stoppage to last more than 7-10 days, after which it would likely need to use back-to-work legislation or binding arbitration to end the dispute. The following table by the American Association of Railroads (AAR) shows Canadian freight rail traffic, including chemicals, for the week ended 17 August and the first 33 weeks of 2024: ($1=C$1.36) Thumbnail photo source: CPKC

21-Aug-2024

SINGAPORE (ICIS)–ICIS is introducing a new monthly domestic polypropylene (PP) block copolymer price index for South Korea starting from 16 August. This spot assessment on a delivered (DEL) basis is ICIS' first monthly index dedicated to the South Korean market. The new quote will track locally traded PP block copolymer resins with melt index (MI) between 30 to 60 that are mainly used for automotive applications. The launch of the quote is motivated by calls for more information and greater clarity on the domestic market conditions from South Korea's automotive industry as local prices deviate from export values. Previously, market participants have been using CFR (cost & freight) CMP (China Main Port) and prices of upstream chemicals like naphtha's, as reference points for domestic discussions. “ICIS has developed an index that is relevant for the South Korean domestic market,” ICIS Asia managing editor Peh Soo Hwee said. “This is in line with changing industry developments as taking direction from overseas markets such as China is no longer fit-for-purpose given the very different dynamics in Korea,” she said.

15-Aug-2024

SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson. The ICIS data continue to tell us that we are facing the biggest shake-up in the modern history of the petrochemicals industry. Let’s today use high-density polyethylene (HDPE) China accounted for just 6% of global HDPE demand in 1992 although it had a 22% share of the global population. By the end of 2024, we expect China to generate 33% of global demand from an 18% share of the population. For far too long, our industry overlooked the warning signs: China’s rapidly ageing population, its real estate bubble and the geopolitical split with the West. It was only a question of when rather than whether the Chinese economy would enter a more challenging phase. We can see from the ICIS data on spreads and margins that the “when” arrived in late 2021 – the Evergrande Moment. CFR China HDPE injection grade price spreads over CFR Japan naphtha costs have averaged just $212/tonne since the end of Petrochemicals Supercycle – from January 2022 onwards. This compares with the $487/tonne average during the Supercycle – 1992 until 2021. So, spreads need to rebound by 130% to get back to where they were during the Supercycle. This year, as we can see from the chart in today’s post, they have fallen to a new record low. Global capacity was added largely on the assumption that China’s HDPE demand growth would be higher than is going to be the case. My highly unscientific “wisdom of crowds” approach, which involved talking to lots of people, suggests that the consensus view was that China’s petrochemicals demand growth in general would be at 6-8% over the long term. Low single digit growth now seems more likely. Global HDPE operating rates were very healthy during the Petrochemicals Supercycle. Including two years after the end of the Supercycle (the 1992-2023 period), we estimate they averaged 88%. We forecast a global operating rate of just 75% in 2024-2030. Global capacity would have to grow by just 173,000 tonnes a year versus our base case assumption of 2.6m tonnes a year if 2024-2030 were instead to reach 88%. Rationalisation of capacity in disadvantaged regions such as Europe and Asia ex-China seems likely as China, the Middle East and the US carry on building. So much for what we know. What about the “unknown unknowns”? Here are just two of them: What will be the size of China’s population by the end of the century and therefore its HDPE and other resins demand? Estimates range from 633m to 525m or even less. Can China fully maintain its role as the Workshop of the World? Or will reshoring and trade tensions eventually lead to a major decline in Chinese exports? Facts, or rather data, are sacred. So should be rigorous scenario planning as “one size fits all” views of the future won’t get us anywhere. Neither will a repeat of the conventional thinking that got us into this mess in the first place. 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-Aug-2024