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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

Europe's energy market needs more trade and integration – CEO

Trading association celebrates anniversary, outlines future challenges Integration with emerging markets in Ukraine, Moldova, West Balkans and consolidation of institutions key to success Gains for populist parties in EU elections will not change outlook for energy transition LONDON (ICIS)–Europe’s single energy market needs more integration and free trade to live up to ongoing challenges, Mark Copley, CEO of Energy Traders Europe told ICIS in an interview. Marking the 25th anniversary of Europe’s foremost energy trading association, previously known as EFET, Copley said the EU had created the largest and best functioning gas and power markets anywhere in the world. He said the proof of this achievement came in the last three years, when the single market showed its extreme resilience. It went from the lowest demand in living memory during the COVID-19 pandemic to keeping Europe’s supplies secure in the face of Russia’s war in Ukraine and an unprecedented energy crisis. In the last 25 years, Energy Traders Europe has witnessed the single energy market develop from a dozen core countries to include 27 EU member states as well as neighbors such as Ukraine or Moldova. The challenges experienced by the electricity and gas sectors are reemerging in new markets for hydrogen, biomethane or guarantees or origin. “In a way everything’s changed and nothing’s changed,” Copley said, adding that the need to attract investors and global competitiveness remained as pertinent as ever. To meet ongoing challenges, the single market would have to work towards even greater integration, stronger institutions and a more flexible regulatory framework. CLOSER TOGETHER Integration would translate not only into bringing EU and neighboring countries closer but also integrating short and long-term markets, harmonizing subsidies and establishing more standardization to ensure all members work along similar principles. “If the discussion is going to be around competitiveness, let’s expand it,” he said. “Let’s become even more competitive by taking it into the UK, the Western Balkans, into Ukraine, into Moldova, into North Africa, because the structure we’ve created is replicable and extendable. And the more you extend it, the bigger the benefits to everyone,” he said. Mirroring the growth of the market itself, Energy Traders Europe’s membership has grown from seven to 165, including two that joined this month. Members come from 30 countries, including Azerbaijan, Kosovo and Ukraine. COMMON LANGUAGE Copley said he is particularly proud of some of the association’s achievements, such as establishing standard EFET contracts. These helped streamline over-the-counter trading in energy and energy-related instruments. “Can you imagine a trading system where every person you trade with has to be assessed on a bespoke basis and everybody you trade with, every trade you do has to be confirmed by fax, because that’s where we came from?” Copley, who joined the association in February 2021 after spells with the British government and the energy regulator Ofgem, said the integration of markets should go hand in hand with the consolidation of institutions tasked to drive policies. This may include giving greater powers to the EU Agency for the Cooperation of Energy Regulators (ACER) and consolidating the independence of national watchdogs to ensure rules are enforced effectively. Although the merits of an integrated, functional market were proven in times of extreme stress, they are still not fully recognized across the political spectrum, he said. POLITICS Geopolitical uncertainty may be prompting policymakers to take a more interventionist stance, as they fear security of supply risks. “Energy’s got more political. I’m not going to say energy was ever boring but people have become more acutely aware that energy is key to economic growth, to inflation, to everybody’s lives. “Now there’s more fragmentation in thinking and there’s a job for us to explain why this thing we’ve created is genuinely good for customers across Europe,” he said, adding that more free trading will be critical in ensuring a successful energy transition. Although far-right populist parties gained ground in recent EU elections, the bloc’s energy transition ambitions may not be diluted. “I think there’s going to be a conversation about the speed of decarbonization, but fundamentally, we’re working to a legally binding target and if you add up [centre-right group] EPP, Renew and the Socialists & Democrats you’ve got 400 members and you need 361 [out of 720 seats]. So, for all the talk of the right-wing parties, there is a fairly large centrist group, and I would like to think we should be able to agree [on energy transition policies],” he said.

14-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

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

China price pressures to remain weak on persistent weak demand

SINGAPORE (ICIS)–China's consumer inflation rate is expected to remain weak in the near future on persistently weak domestic demand, raising worries about the risk of deflation as the nation's economic recovery struggles to gain traction. This comes as the country's consumer price index (CPI) rose by a mere 0.3% year-on-year in May, unchanged from April and well below the government's 3% target. "Amid still-weak domestic demand, we expect CPI inflation to stay slightly above zero in the near term and producer price index (PPI) inflation to be slightly less negative on a low base," Japan's Nomura Global Markets Research said in a note. China's headline inflation rate is projected to remain positive but stay mild under 1% until the third quarter of this year, said Ho Woei Chen, an economist with Singapore-based UOB Global Economics & Markets Research. "The deflation in the fourth quarter of 2023 will provide a low base for CPI to rebound more strongly in the last quarter of the year," Ho said. UOB's full-year forecast for China's headline inflation is at 0.7% for 2024, compared with 0.2% in 2023, "but current trajectory suggests that the risk is to the downside", she added. Meanwhile, factory gate prices continued their downward spiral, with the PPI falling for the 20th consecutive month in May. The PPI declined by 1.4% year on year in May, a slight improvement from the 2.5% drop in April. "The pace of PPI deflation is expected to ease but this had been slower than expected as oil prices stayed muted and overcapacity in some industries weighed on the prices of manufactured goods," Ho said. "Increasing tariffs imposed on Chinese goods may further delay the price recovery." The persistent low inflation is a stark contrast to the high inflation plaguing Western economies, further fueling fears of deflation as China grapples with sluggish consumer spending – a key obstacle to the country's uneven recovery from the pandemic. While inflation is likely to remain low in the second quarter, it should begin to pick up in the second half of the year, Dutch banking and financial information services provider ING said in a note. "Although inflation is set to pick up this year as the drag from falling food prices fades, it is anticipated to remain well below target amid slowing consumption and weak demand pressures," the World Bank said in its June Global Economic Prospects report released on 11 June. "Producer price pressures are also set to remain weak in the context of subdued activity and softening prices for commodities, particularly energy and metals." China's economic growth is projected to ease to 4.8% in 2024, down from 5.2 percent in 2023, as activity is expected to soften in the latter half of this year, according to World Bank estimates. While a potential uptick in goods exports and industrial activity, bolstered by a global trade recovery, is anticipated, this will likely be counterbalanced by weaker domestic consumption, it added. "We expect domestic and external demand to continue diverging over the near term, as the property fallout sustains and the economy rebalances itself," Nomura said. "Export growth is likely to remain resilient in the near term, thanks to a low base, the resilient US economy, the global tech upswing, the price advantage of Chinese products and some front-loading ahead of scheduled or threatened tariff hikes." Focus article by Nurluqman Suratman

13-Jun-2024

PODCAST: Methanol could play leading role in the low-carbon energy transition

BARCELONA (ICIS)–Methanol has long-term potential as a major player in the energy transition, especially for use as a marine fuel. Methanol mainly made from coal in China, natural gas elsewhere Used to make formaldehyde, acetic acid, in China mainly coal-based methanol to olefins (MTO) Q2 typically sees peak demand for Europe construction but subdued this year Concerns about overcapacity globally as new projects come onstream Use as marine fuel may be a big driver of growth long term Energy transition offers great opportunities In this Think Tank podcast, Will Beacham interviews ICIS senior editor Eashani Chavda and ICIS Insight editor Nigel Davis. 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.

11-Jun-2024

Closures of high-cost assets to accelerate in Europe, northeast Asia – ICIS

SANTIAGO (ICIS)–Announcements of closures for high-cost assets, especially in Europe and northeast Asia, are likely to accelerate in coming quarters as the global petrochemicals industry is forced to rationalize, according to an ICIS analyst on Tuesday. Antulio Borneo, vice president for the polyethylene terephthalate (PET) and polyester chain at ICIS, said announcements of closures for steam crackers – the key facility to produce petrochemicals – in Europe are to accelerate after two key players already said they were shutting theirs. Earlier in 2024, US energy major ExxonMobil said it was to shut its cracker in Gravenchon, France, and Saudi petrochemicals major SABIC said it would shut its facility in Geleen, the Netherlands. “High-cost assets reside mainly in Europe and northeast Asia; the pressure to rationalize old and inefficient assets will intensify as time passes, but it will be expensive,” said Borneo. “Announcements of permanent closures of chemicals plants are expected to gain momentum throughout 2024.” Borneo was speaking at an event about logistics organized by the Latin American Petrochemical and Chemical Association (APLA). The consultant went on to say that Europe’s crackers are, on average, nearly 45 years old, while those in northeast Asia – excluding China – are on average just over 30 years old. With the global oversupply in petrochemicals expected to take years to be absorbed and take the market back into balance, those old assets are first on the line to be shut, concluded Borneo. The APLA Logistica event runs in Santiago on 11-12 June.

11-Jun-2024

Finland to enforce ban on Russian LNG by next spring, says official

Finland hopes to enforce ban on Russian LNG in spring 2025 Finland would be first to use an EU option to unilaterally ban Russian gas and LNG Finland will most likely rely on supply from Norway and the US at small-scale terminals LONDON (ICIS)–Finland’s government has told ICIS it hopes to enforce a ban on Russian LNG in spring 2025, after proposing the legislation this winter. “The legislative proposal on banning Russian gas is due winter 2024-2025 …most likely early 2025,” Director General of the Energy Department at the Ministry of Economic Affairs and Employment, Riku Huttunen, told ICIS.
“After that the ban might be in force in spring 2025.” His comments follow last week’s news that Finland will propose by winter legislation to ban. Finland’s LNG import terminal, Inkoo, already effectively bans Russian LNG due to the terminal’s rules of operation. LNG is still imported from Russia at Finland’s Pori and Tornio terminals under long-term agreements. The two small-scale terminals are not connected to Finland’s gas grid. Finland’s foreign trade statistics indicate that 65% of gas imports in the fourth quarter 2023 came from the US, with 23% coming from Norway and 7% from Russia. Replacing Russian supplies to the small-scale market following winter is expected to go ahead relatively smoothly. “The LNG market is quite liquid at the moment, so I expect no difficulties in replacing the small amounts of Russian LNG still used in Finland,” said Huttunen. “The companies make the commercial decisions,” he said. “Currently, the most important suppliers to the Finnish-Baltic gas market are Norway and the US.” Finland’s Ministry of Economic Affairs and Employment cited earlier this month European Commission analysis that gas supply over winter 2024-2025 will be sufficient to meet Europe’s needs. It also referred to the completion of repair work on the Balticonnector.

11-Jun-2024

India’s GAIL to build $7.2bn Madhya Pradesh petrochemical complex

MUMBAI (ICIS)–State-owned GAIL (India) Ltd plans to invest Indian rupee (Rs) 600 billion ($7.2 billion) to build an ethane cracker and its derivative plants in Madhya Pradesh. The cracker will have a 1.5 million tonne/year capacity and will be set up at Ashta in the Sehore district of the state in central India, GAIL said in a regulatory disclosure to the Bombay Stock Exchange (BSE) on 10 June. GAIL did not provide product or capacity details of the ethylene derivatives it plans to produce at the complex. “Around 800 hectares of land shall be provided by the MP [Madhya Pradesh] Industrial Development Corporation, for which the state government has already initiated the process,” GAIL said. Project construction is expected to begin by February 2025, with commercial production likely in the financial year ending March 2031, it added. Investment on the project is still pending approval from GAIL management board, and the mode of financing yet to be decided. The Madhya Pradesh state government has approved the project and land will be allotted soon, state chief minister Mohan Yadav had said in a statement on 7 June. He said that “petrochemicals like linear low density polyethylene (LLDPE), high density polyethylene (HDPE), mono ethylene glycol (MEG) and propylene will be produced” at the site. The new project is part of GAIL’s initiative to enhance its petrochemical portfolio, a company source said. “The demand for petrochemicals is increasing in the country, led by expanding industrial, construction and manufacturing,” he said, citing an 8-9% annual growth rate in India’s polymer demand. In March 2024, GAIL had signed a tripartite agreement with Oil and Natural Gas Corp (ONGC) and Shell Energy India to explore opportunities for the import of ethane and other hydrocarbons at Shell Energy Terminal in Hazira in the western Gujarat state. Separately, the company recently announced plans to set up liquid pipeline for ethylene (C2), propylene (C3) from Vijaipur to Aurai in the northern Uttar Pradesh state. At Pata in the same state, GAIL will begin operations at the 60,000 tonne/year PP plant by December 2024. At Usar in the western Maharashtra state, GAIL expects to begin operations at its 500,000 tonne/year propane dehydrogenation unit (PDH) and 500,000 tonnes/year polypropylene (PP) line by April 2025; and its 50,000 tonne/year isopropylene project by December 2025. In the southern Karnataka state, the company expects to bring on line its 1.25m tonne/year purified terephthalic acid (PTA) plant in Mangalore by March 2025. GAIL had acquired JBF Petrochemicals in June 2023 which allowed it to add PTA to its existing petrochemical portfolio. ($1 = Rs83.49) Focus article by Priya Jestin

11-Jun-2024

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Tom Marzec-Manser, Head of Gas Analytics

Tom leads ICIS qualitative analysis on European gas hubs and global LNG markets, promoting TTF as a global benchmark. Tom’s work supports the ICIS LNG Edge platform offering pre-trade analysis plus granular LNG supply-demand forecasts. 

Alice Casagni, European Spot Gas Editor

Alice’s specialist expertise lies in the gas pricing methodology that underpins ICIS gas assessments and indices, for which she is responsible. Alice joined ICIS in 2016 covering European gas markets including Italy and the Netherlands.

Ed Cox, Global LNG Editor

Ed manages the ICIS global LNG editorial team, analysing LNG markets at a granular level, from individual cargoes to broader trade flows and global trends. Ed joined the ICIS LNG team in 2014, prior to which he led ICIS European gas coverage.

Alex Froley, Senior LNG Analyst

Alex is a specialist in European gas and LNG, publishing regular commentary on LNG market trends. His team maintains and develops market fundamentals data on the ICIS LNG Edge platform, including real-time ship-tracking and import/export trade flows.

Barney Gray, Global Crude Oil Editor

Barney specialises in upstream oil and gas Exploration & Production and valuation modelling, with an extensive industry network. His role encompasses price discovery and insight, including managing ICIS tri-daily World Crude Report.

Aura Sabadus, Energy and Cross-Commodity Specialist

Aura works to develop integrated ICIS coverage of energy, petrochemicals and fertilizer markets, explaining the impact of energy price movements on energy-dependent sectors. She also covers emerging gas markets including the Black Sea region. ​

Jake Stones, Global Hydrogen Editor

Jake leads on price discovery for hydrogen as a tradeable commodity, engaging with European energy market participants to refine ICIS’ hydrogen pricing methodology. ​Jake joined ICIS in 2019 as a UK gas market reporter, moving to hydrogen in 2020.

Matt Jones, Head of Power Analytics

Matt overseas the output of ICIS’ power team across 28 European markets, from short-term developments to long-term forecasting out to 2050. ​He provides quantitative and qualitative analysis, with particular focus on EU regulatory developments. ​

Lewis Unstead, Senior Analyst, EU Carbon

Lewis is an expert on EU and UK ETS legislation and market design, regularly advising ETS compliance players and market regulators. He manages ICIS‘ weekly and monthly carbon commentary, analysing carbon’s interplay with wider energy markets.

Andreas Schroeder, Head of Energy Analytics

Andreas is responsible for quantitative modelling and data-based analysis products within ICIS’ energy offer, covering carbon, power, gas, LNG and hydrogen. His expertise lies in energy economics, focusing on traded energy commodities.

Matteo Mazzoni, Director of Energy Analytics

Matteo has extensive analytics expertise in power, gas, carbon and energy planning. Matteo has responsibility for ICIS energy analytics strategy and operations including research and analysis, product ideation and development, and market engagement.​

Jamie Stewart, Managing Editor, Energy

Jamie manages ICIS’ 50-strong energy editorial team, covering European gas, power and hydrogen markets alongside global LNG and crude oil. Jamie is responsible for ICIS’ coverage of energy news, analysis, price assessments and indices.

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