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The EU's free market principles: standing the test of time

THE 2022 CRISIS (THAT NEVER WAS) Early in 2022, in the aftermath of Russia’s invasion of Ukraine, the EU unveiled a radical ambition: to reduce reliance on Russian gas by two-thirds that year, followed by complete independence from Russian fossil-fuels well before the decade’s end. What followed has become known as the energy crisis of 2022. But, as global gas flowed into Europe, infrastructure build was rapidly accelerated and public buildings from Berlin to Brussels lowered heating and dimmed lights, the much-assumed and widely-feared ‘crisis’ never materialised. What did emerge was evidence of an extraordinarily durable market design. One that withstood the most extreme stress test and, ultimately, did what it was intended to do: safeguard supply security through the formation of price signals that reflected the stark reality on the ground. Two years on from the Russian invasion of Ukraine, Europe’s structural pivot away from Russian gas has proved a resounding and unlikely success. The continent’s gas prices are stable, its stocks are full, and its import capacity is booming. The integrated electricity and gas markets established by the EU over the last three decades have saved consumers billions of euros over the years, driven technological progress and helped the EU avert an energy crisis that even the most optimistic of experts in early 2022 considered inevitable. By comparison, the controversial market interventions of 2022 are yet to prove of any lasting value. The liberalised market model has come through extreme stresses and emerged intact. Its next challenge will be the energy transition. Provided the market model’s guiding principles – free trade, fair competition, deeper integration – remain unchanged, it should prove as fit for our next generation’s low-carbon future as it has for the unexpected challenges of the recent past. 1. HOW WE GOT HERE EU energy market liberalisation began in the 1990s. Security fears subsided after the Cold War, and market forces were unleashed to guide policy and shape behaviour. The liberalisation of strategic sectors such as electricity and natural gas became the narrative of choice across Europe. The aspiration found fertile ground. The EU’s founding treaties and acts had outlined a vision for achieving prosperity and peace by guaranteeing the free movement of goods, services, capital and people through common rules for all states. The EU’s electricity and gas markets were established in that spirit, aiming to provide affordable and secure energy supplies by integrating competitive forces. Energy market reforms were rolled out across five packages. Although the initial two were timid in scope, the third package of 2009 went much further, becoming the cornerstone of the internal energy market. The remaining two packages adopted in recent years reflected the EU’s newer challenges, aiming to prepare markets for the energy transition and the phase-out of fossil fuels. There is clear evidence that free markets have brought concrete benefits including cheaper prices, significant savings and greater energy security. Competitive prices The early stages of development of the UK’s NBP gas market – the first to liberalise across Europe – show the emergence of competition brought not only greater flexibility but also more competitive prices. Before 1990 markets were firmly under the control of monolithic state-owned incumbents. But after 1990, coinciding with the ‘dash for gas’ encouraged by booming North Sea production, the price of natural gas was increasingly set by supply and demand rather than embedded in long-term contracts between producers and consumers. Because of competition in both gas production and wholesale gas market expansion, the British NBP price generally traded below Germany’s border import (BAFA) price. Security of supply Another goal pursued by the EU has been supply security. With limited gas production of its own, the bloc has historically been dependent on pipeline imports from Russia, Norway, Algeria and Libya. Growth in global LNG supplies allowed countries such as France, the Netherlands, Italy and the UK to expand LNG import facilities and secure volumes from emerging producers. The incentive provided by the price signals at gas hubs sparked private investment in new infrastructure including new pipelines and LNG regasification terminals which allowed member states to diversify supplies. This proved of critical importance in 2022 when Russia, as Europe’s main supplier of gas, stopped most of its exports. 2. AVERTING CRISIS Between the second half of 2021 and the end of 2022, Europe witnessed a sharp decline in gas supplies which left wholesale prices and trading volatility spiralling. The situation unfolded against a background of factors: Rising demand following the lifting of Covid-related restrictions Production problems at various LNG plants across the world Russia’s curtailment of supplies to Europe before and after its invasion of Ukraine Considering the experience of 2022, is the liberal market model adopted by the EU in the 1990s fit not just for today, but for the challenges of tomorrow too? From one extreme… Concerned by the developments of 2022, the EU adopted a raft of interventionist measures ranging from mandating storage stocks across all EU member states to designing tools to intervene in wholesale gas prices. The sheer volume of regulations designed to shield consumers was unprecedented. However, while some regulations such as the introduction of mandatory storage quotas were useful as they forced member states to ensure backup supplies, others were not needed or failed to make an impact. For example, the market correction mechanism was introduced in February 2023 and subsequently extended to all EU hubs in May of that year. It was intended to cap gas prices in the event of extreme and sustained price increases. But as global trade patterns have realigned, hub prices have progressively fallen since the end of 2022, and the increase in supply flexibility from a global LNG market means the type of extreme supply shock seen in 2022 will not be repeated. This means the market correction mechanism is highly unlikely to be triggered and will have no impact on markets, a fact that was highlighted by the EU’s Agency for the Cooperation of Energy Regulators (ACER) in a report. Instead, the report noted prices rebalanced as markets responded correctly – even during periods of extreme stress. And data collated by ICIS confirms the ACER findings. Gas consumption fell on average 12% in 2022 in response to price signals and another 8% in 2023 as markets rebalanced. Overall, in 2023, European gas consumption dropped 20% below the 2017-21 average. On the supply side, as Russia cut pipeline supplies to Europe, buyers turned to the global LNG market to secure alternative supplies. ICIS data shows that as Russian supplies fell from 155 billion cubic meters (bcm)/year in 2021 to 69bcm/year in 2022 and further to 30bcm/year in 2023, LNG imports nearly doubled from 46bcm/year before the war to just over 90bcm/year in 2023. The rush for LNG sparked interest in expanding and building regasification capacity, and by the end of 2023, 19 new terminals were proposed across the bloc. Even countries such as Germany, which had been dependent on Russian gas for more than 50% of its imports, pivoted towards LNG, lining up regasification terminals, some of which are already operational. The single most important factor in helping to attract additional supplies was the ability of Europe’s markets to react freely to the severe imbalances in demand and supply. …to the other extreme While 2022 inflicted significant shocks, plummeting global demand caused by Covid lockdown-related restrictions in 2020 also tested the resilience of the EU gas market. With global gas demand falling some 4% year on year in 2020, supply exceeded consumption, and excess LNG was pushed to Europe which absorbed two-thirds of incremental global supply in the first half of the year. Europe’s was able to mop up the global supply overhang due to the flexibility of its markets, its storage facilities and the availability of vast storage capacity in its immediate neighbourhood, in Ukraine. Data collated by ICIS shows volume traded on the Dutch TTF hub, Europe’s most liquid gas market, reached its highest level in 2020 as prices collapsed and a share of the gas produced globally was absorbed by Europe. Both examples – the demand collapse induced by global covid restrictions in 2020 as well as the supply crunch caused by Russia in 2022 – prove the resilience of the European gas market in the face of extreme shocks. 3. WHAT NEXT? More than three decades ago liberal markets were seen as a cure to the inefficiencies of centralised economies. However, there is no doubt that the political and economic shocks experienced in the aftermath of the Covid pandemic and Russia’s invasion of Ukraine have lashed markets, contributing to rising inflation and higher living costs. There have also been questions about the vulnerability of markets to malign speculative activity, including reports that large hedge funds armed with new technology such as algorithmic models may have contributed to abnormal bouts of volatility in the gas market at the height of the 2022 price spikes. To mitigate the impact of the rising risks and to stave off social discontent, many member states resorted to a vast array of interventionist measures. As the debate between free markets or intervention continues, the EU is facing two dilemmas that will determine the direction its market arrangements should take in the years to come. Safe or wealthy? The first relates to a choice the EU will make as it faces the challenge of tackling security alongside its quest for prosperity. Although security risks are real, there are prevailing arguments to refrain from further regulating the EU’s internal gas market. The market proved its resilience to extreme stress both in times of supply shocks and exceptionally low demand, sending reliable price signals that enabled a prompt reaction to unforeseen challenges. The ability of the market to react provided the necessary safeguards in times of extreme threat. Energy market liberalisation and the need to guarantee supply security have therefore not been mutually exclusive, but thoroughly compatible. The liberal norms that brought fair competition, transparency, good governance and the rule-of-law shielded the EU from the malign influence of rogue actors such as Russia which weaponised gas supplies. The establishment and consolidation of the internal gas market allowed the EU to remain the rule setter and Russia the rule taker. National or international? Despite the growing collection of regulations adopted by the EU to integrate member states, the construction of the internal liberal market has been fuzzy at times, reflecting a patchwork of disjointed regulatory regimes. One example is the process of market liberalisation itself. Over the years markets such as the Dutch TTF gas hub, which was fully committed to liberalisation, reached a high level of liquidity and maturity while others have struggled to open. This has often led to clashes between national regulatory regimes and policies adopted at EU level. In many cases, the EU had to intervene, triggering infringement procedures against national governments and forcing member states to step back in line. The events of 2022 laid bare such fault lines as many member states adopted regulations such as capping retail and wholesale prices, ladling out generous subsidies or introducing hefty taxation that had been frowned on by the EU. Despite the clear clash, the EU adopted a more lenient stance towards national policies and even took a leaf out of the member states’ book, seeking to regulate wholesale gas prices. In the longer-term such compromises could prove harmful not only to the internal gas market but to the wider EU project as member states would feel empowered to stray away from the bloc’s common objectives. What is needed is more nationally-aligned, long-term planning at EU level to address the challenges that will face the bloc in the future. The answer Unity of purpose and action is vital as the EU faces not only geopolitical threats but also challenges of historic importance such as climate change and the low-carbon energy transition. Supply security will hinge on the large-scale deployment of renewable forms of generation, which means energy markets will need to be flexible, nimble and integrated to guarantee reliable supplies at affordable prices. The answer to the EU’s multiple challenges, therefore, is further deepening the integration of its markets and allowing them to operate along the original, guiding principles. Europe’s best hope for success is as it has always been: Free trade, fair competition and deeper integration.

01-Mar-2024

S Korea Feb petrochemical exports fall 3.1%; overall shipments up 4.8%

SINGAPORE (ICIS)–South Korea's petrochemical exports in February fell by 3.1% year on year to $3.94bn, reversing the 4.0% growth in the previous month, official data showed on Friday. The country's overall February exports rose by 4.8% year on year to $52.4bn, supported by a 66.7% year-on-year surge in semiconductor shipments, data from the Ministry of Trade, Industry and Energy (MOTIE) showed. Imports for the month fell by 13.1% year on year to $48.1bn, resulting in a trade surplus of $4.29bn. Automobiles, which led South Korea’s exports in 2023, had a 7.8% year-on-year fall in February shipments to $5.16bn. The drop in automobile exports was mainly due to the reduced number of working days due to the Lunar New Year holiday, as well as maintenance works at several production lines. Overall February exports to China dipped by 2.4% year on year to $9.65bn. Despite the decline, South Korea achieved its first trade surplus with China since September 2022. China is South Korea's biggest trading partner. To the US, exports rose by 9% year on year in February to $9.8bn.

01-Mar-2024

LOGISTICS: Carrier CMA CGM to resume Red Sea transits on a case-by-case basis

HOUSTON (ICIS)–Global container shipping major CMA CGM Group will begin transiting the Red Sea on a case-by-case basis as it continues to closely monitor the situation, the company said in an advisory to customers. The company said it will make assessments for each vessel prior to transits, so routing choices cannot be anticipated or communicated. All other vessels will continue to be rerouted around the Cape of Good Hope. Houthi attacks on commercial vessels in the Red Sea began in November 2023, forcing carriers to begin diverting away from the Suez Canal in December. Maersk and CMA CGM Group were the last two major carriers to completely cease transits through the Suez. The longer routes put upward pressure on freight rates because of increased fuel costs and tightened capacity with fewer available ships. Rates surged but have begun to ease, although they remain elevated. 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), which are shipped in pellets. Some liquid chemicals are also shipped on container ships using isotanks. Visit the ICIS Logistics: impact on chemical and energy markets Topic Page.

29-Feb-2024

GLM FOCUS: What Qatar's latest LNG expansion plan means for market

LONDON (ICIS)–Qatar’s decision to add a further 16mtpa of LNG production by 2030 has a broad impact across the market, affecting prices, US LNG, buying activity, and shipping. Two more trains will take Qatari LNG production up to 142mtpa, representing over a quarter of global demand by late in the decade. As with past projects, Qatar appears less reliant on achieving contractual offtake, equity investments or a resulting final investment decision (FID) to move forward. The LNG giant’s ability to push ahead with an early announcement strengthens its hand securing offtake at the expense of future competitors, particularly as the market turns in buyers’ favour. Sources said that Qatar has already been negotiating with buyers in India to secure long-term offtake. Buyers in China are also aware of a strong marketing drive in Asia. However, offtakers are also showing signs of delaying any agreements where possible, as competition for offtake into the 2030s heats up, said sources. Current equity-holders did not respond to requests for comment over rights to bid for further investment. US PROJECTS Some US sources expected European buyers to continue to prefer US LNG over Qatari supply, avoiding the Suez Canal. Asian buyers, though, see less risk in Qatari supply, sources said. But the regulatory pause on new US LNG project approvals means little new contracting activity is likely. Last month, the Biden administration announced it would halt approvals for new US LNG projects until it updates how their economic and environmental impact is evaluated. That might change either after the US presidential election or when updated guidance from the US Department of Energy (DOE) is released. How LNG demand will develop is also important to understanding the impact of Qatar’s additional 16mtpa. “LNG demand is forecast to grow beyond production, capacity in operation or under construction, so new supply sources are required,” said a Shell spokesperson, calling continued investment in LNG “critical”. Before the latest Qatari expansion was announced, Shell forecast global LNG demand to overtake supply around 2027. But ICIS Analytics shows demand is unlikely to outstrip supply before 2030, given a less optimistic view on demand growth. “If we only include projects [with FIDs], there is a chance that in 2030 global oversupply might turn into undersupply,” said ICIS lead Asia gas analyst Alex Siow. “As such, Qatar’s increased capacity is only exacerbating the current oversupply from 2026 to 2030,” he said, adding there will be “many options for buyers by 2026-2030”. “Even without the additional 16mtpa from Qatar, many US projects [that have completed FIDs] are already impacted by the global oversupply from 2026.” The result could be US projects lowering output, increasing maintenance periods, or offering increasingly competitive prices by using mechanisms like financing or declaring sunk costs. ACTIVE QATARI MARKETING IN ASIA Many Chinese buyers would like to wait to see if pricing offer levels fall, sources in China said. And Chinese buyers may not be the only ones not willing to sign new deals just yet. “Those who can wait at least until after US elections will,” said one source close to South East Asia buyers. Significantly lower spot prices mean long-term contracts are less attractive for now, strengthening buyer positions. EUROPEAN GAS PRICES fall Several trading sources said they were clear that Qatar’s announcement was the key factor in pushing annual 2027 and 2028 TTF contracts down on 26 February. The TTF 2028 contract price dropped 1.4% to $8.74/MMBtu, with the 2027 contract falling 0.4%. Prices up to 2026 increased the same day. One trader in northwest Europe noted that increased supply later this decade could help Europe shift from its current role as the premium global market. “Who [in Europe] wants a 20-year contract?” said the trader. “Qatari …volumes make sense for Asian buyers …that could free up LNG for Europe from the US and [flexible] volumes.” Yet Qatar could still turn to Europe for some offtake to add to its terminal capacity rights. Negotiations for Qatari offtake with buyers in Germany, Austria, Slovakia and the Czech Republic were ongoing in 2023, sources said. No agreement to deliver LNG into Germany for onward delivery to its neighbours was reached because of perceived high exit fees. A Germany-based source said the government is also still keen to encourage a shorter long-term contract. Exit fees could also change. Routes to Austria and the region may include Italy and Greece in future, given that interconnectors from Italy to Greece are being expanded. SHIPPING Even as Qatari offtake falls from 2029 into the 2030s, spurring Qatar to secure further volumes, it appears well-supplied with shipping options. Newbuild prices remain high but have been falling since 2023, dropping from $265m to $262m by early February, according to shipowner Flex LNG. And with over 100 newbuild vessel slots between Korean and Chinese shipyards, they can afford to wait, according to ICIS analyst Robert Songer. But there are questions over whether it now needs to expand the fleet further (see box-out). Additional reporting by Yueyi Yang and Fauzeya Rahman

28-Feb-2024

MOVES: Brazil’s Unipar CFO resigns

SAO PAULO (ICIS)–Unipar’s CFO Antonio Campos Rabello has handed in his resignation, effective 29 February, the Brazilian chemicals producer said late on Tuesday. Campos Rabello was also Unipar’s investor relations officer. The company’s executive industrial officer, Rodrigo Cannaval, will temporarily assume the position of Investor Relations Officer, said Unipar. “The company would like to thank Rabello for his management work, especially as to the preparation of a capital structure adequate for the company’s expansion plans, enabling access to several financing sources in terms of currency, financial institutions and markets, as well as the analysis and structuring of growth opportunities,” said Unipar. Earlier this week, Unipar said it was mulling a joint acquisition with Brazilian chemicals producer Innova, without disclosing more details. According to a report by Brazilian daily O Globo, the two companies would be looking at an acquisition in the US of around $700 million.

28-Feb-2024

BLOG: How Europe can avoid 'sleepwalking' towards offshoring of petrochemicals

SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson: The European petrochemicals industry, to borrow Jim Ratcliffe’s phrase, does not have to continue “sleepwalking towards offshoring its industry, jobs, investments, and emissions”. Ratcliffe, the INEOS chairman, was on the money with the phrase, contained in a call-to-action letter to European Commission President, Ursula von der Leyen, earlier this month. This came in the same week that producers launched the Antwerp Declaration for a European Industrial Deal. This is all great news for the European industry as my two scenarios for global petrochemicals in 2030 – Supermajors or Deglobalisation – will be shaped by the actions of companies and legislators. In Europe, the threat of a further flood of competitively priced and lower-carbon imports of polymers risks lost local jobs in refining, petrochemicals and downstream (the downstream jobs being many more than upstream). And if petrochemicals plants shut plant, upstream refineries important for local fuels supply may be threatened.  You can also make a case for recycling targets being hard to achieve under Supermajors. As well as lobbying legislators, what else can European producers do? Here are my suggestions: Companies need to “make their own demand” by more forcefully arguing the case for the societal and environmental value of what they produce (while, of course, also ensuring that what they produce has strong social and environmental values!). A deeper dive into the opportunities in different end-use markets and geographies is the key. Let’s take wire-and-cable grade low-density PE (LDPE) as an example. A lot more electricity transmission in Europe will have to be built to distribute renewable energy, which of course is an environmental gain and elsewhere in the world. Could European wire-and-cable LDPE producers be a leader in providing product to Africa? This is a very different approach than during the 1993-2021 Supercycle, when booming demand was guaranteed. All producers had to do as ensure there was enough supply, preferably with low feedstock costs and efficient logistics. 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.

28-Feb-2024

Saudi SABIC swings to net loss in 2023 on Hadeed sale, challenging market

SINGAPORE (ICIS)–Saudi Arabia’s chemicals major SABIC swung to a net loss of Saudi riyal (SR) 2.77bn ($739m) in 2023, largely due to one-off losses related to a divestment, while earnings from continued operations shrank amid challenging global market conditions. in Saudi Riyal (SR) bn 2023 2022 % Change Revenue 141.5 183.1 -22.7 EBITDA 19.0 36.4 -47.7 Net income from continuing operations 1.3 15.8 -91.8 Net income attributable to equity holders of the parent -2.8 16.5 – The company's net loss for 2023 was "driven mainly from the fair valuation of the Saudi Iron and Steel Co (Hadeed) business", SABIC in a filing to the Saudi bourse Tadawul on 27 February. In early September 2023, SABIC announced it had agreed to sell its entire stake in the Saudi Iron and Steel Co (Hadeed) to Saudi Arabia's sovereign wealth fund for SR12.5bn. The sale resulted in non-cash losses worth SR2.93bn. From continuing operation, full-year net income declined by 91.8% on reduced profit margins for major products, as well as lower earnings of joint ventures and associated firms. SABIC also incurred charges from non-recurring items amounting to SR3.47bn in 2023,“as a result of impairment charges and write-offs of certain capital and financial assets as well as provisions for the restructuring program in Europe and constructive obligations”. Meanwhile, SABIC’s average product sales price in 2023 fell by 21%, reflecting the global downturn in petrochemical markets, it said. Overall sales volumes fell by 2% year on year in 2023 amid sluggish end-user demand, the company said. "Year 2023 presented numerous challenges for the petrochemical industry – the market environment was shaped by lackluster macroeconomic sentiment, weak end-user demand, and a wave of incremental supply for a large suite of products," it said. The company's petrochemicals business posted a 20% year-on-year decline in sales to SR131.3bn in 2023, with EBITDA down by 42% at SR14.6bn. "The petrochemical industry navigates a challenging operating environment – underwhelming demand within our target markets led to lower year end product prices and there remains considerable uncertainty heading into the first quarter of 2024," SABIC CEO Abdulrahman Al-Fageeh said. "The announced divestment of Hadeed is proceeding as planned – this optimization of internal resources will enhance our core focus on petrochemicals," he said. SABIC is also pursuing a number of initiatives to address the "competiveness of our European assets" aimed at a "maintainable and modernized footprint in the region", Al-Fageeh added. The company plans a higher capital expenditure of between $4bn and 5bn in 2024, compared with $3.5bn-3.8bn last year. SABIC has started construction of its $6.4bn manufacturing complex in China’s southern Fujian province. The project will include a mixed-feed steam cracker with up to 1.8m tonne/year ethylene (C2) capacity and various downstream units producing ethylene glycols (EG), polyethylene (PE), polypropylene (PP) and polycarbonate (PC), among other products. SABIC is 70%-owned by energy giant Saudi Aramco. ($1 = SR3.75)

28-Feb-2024

European Commission calls for member states to maintain gas demand cuts

LONDON (ICIS)–The European Commission on Tuesday urged member states to maintain current gas consumption reductions as the expiration date of emergency legislation mandating the cuts approaches. Introduced in the wake of Russia’s invasion of Ukraine and the subsequent scramble in the EU to reduce its exposure to natural gas supplies from the country, the two-year emergency bill called for EU countries to reduce gas consumption by 15% compared to April 2017 – March 2022 averages to shore up limited reserves. According  to the Commission, governments collectively reduced demand by 18% between August 2022 and December 2023, with efforts to reduce consumption driven by soaring prices in the winter of 2022 that led to the introduction of price caps in the EU and by some individual member states. ENERGY IMPACT Prior to the onset of the war, the EU derived over half of its supplies of natural gas, which had been embraced as a means of lowering CO2 emissions, particularly following Germany’s move to phase out nuclear energy. Gas had surged from under $200 per metric million British thermal units (/MMBtu) at the start of the 2022 to over $1,700 in October of that year. Pricing has subsided since then but energy pricing remains a concern, particularly for energy intensive industries. Citing energy costs as a key factor behind a decision to push for drastic cuts at its Germany headquarters, BASF stated that 2023 natural gas pricing in Europe remained twice the 2019-21 average and five times US Henry Hub averages, although prices have fallen this year. BASF’s move to scale back its Ludwigshafen Verbund complex was attributed by CEO Martin Brudermuller to what he termed temporary factors such as demand, and other drivers such as higher energy costs, which he claimed are “structural” in Europe. FUTURE PROPOSALS The current emergency legislation is set to expire on 31 March this year, but the European Commission is proposing to adopt a Council recommendation calling for member states to maintain the voluntary reductions that have been adopted over the last two years. The target would be to maintain gas consumption at 15% below 2017-22 averages, the Commission said, with Commissioner for Energy Kadri Simson and EU energy ministers to discuss the measure on 4 March. Despite a more stable European gas market outlook and less volatile pricing, tight global markets and geopolitical upheaval mean that EU economies need to remain vigilant, according to a Commission statement. "The persistence of geopolitical tensions, tight global gas markets and the EU's objective to completely get rid of Russian fossil fuels, continued energy savings are still necessary," the Commission said. Thumbnail photo source: Hollandse Hoogte/Shutterstock

27-Feb-2024

Japan January inflation at 2.0%; end to negative interest rates in sight

SINGAPORE (ICIS)–Japan's core consumer inflation in January rose by 2.0%, matching the Bank of Japan's (BoJ) price stability target and supporting expectations that the central bank will end its ultra-low interest rates policy by April. Consumer inflation at lowest since March 2022 BoJ’s benchmark interest rate at -0.1% since Jan 2016 Weaker yen drives up import costs The core consumer price index (CPI) – which excludes volatile fresh food prices – in January weakened from 2.3% in the previous month, marking its third straight month that the country's inflation has slowed, data from the Statistics Bureau showed on Tuesday. January's core CPI reading also marks its lowest point since March 2022 as cost of imported raw materials decreased but the number came in higher than market expectations. "[BoJ] Governor Kazuo Ueda has expressed confidence of anchoring inflation above the government’s target of 2% and inflation reading is expected to pick up in February as the impact from the government’s price relief measures fades on a year-on-year basis, boosting market expectations that the BOJ is nearing the end of its ultra-loose monetary policy soon," Malaysia-based HongLeong Bank said in a research note on Tuesday. The sharp depreciation of the yen has caused Japan's import bill to soar. At 03:45 GMT, the yen was trading at Y150.48 against the US dollar, down by more than 6% from the start of the year. Source: xe.com Japan relies significantly on imported crude oil as it lacks substantial domestic production. About 80-90% of its crude oil imports are sourced from the Middle East, according to the International Energy Agency (IEA). While the country’s domestic refineries can satisfy demand for transportation fuels, it imports liquefied petroleum gas (LPG) and naphtha heavily as domestic production does not meet the required levels. ALL EYES ON BOJ The BoJ is widely expected to end its negative interest policy, introduced in January 2016, by April this year. The policy was kept for years to stimulate credit growth and investment, in the central bank’s fight against deflation. In its latest meeting in January, the central bank kept its benchmark interest rate at -0.1%, but its quarterly economic report hinted at possible policy normalisation. For the whole of 2023, Japan’s consumer inflation posted an annualized average of 3.1%, up from the previous year’s 2.3% average and the highest recorded since 1982, because of the weaker yen, which made imports more expensive. Despite BoJ officials' confidence in hitting the 2% inflation target, recent data undermines this view following two consecutive quarters of GDP contraction due to weak consumption. Japan’s economy shrank by an annualised rate of 0.4% in the fourth quarter of 2023, following a 2.9% contraction in the July-September period. For the whole of 2023, it posted a 1.9% growth. Because of the recession in the second half of last year, the country was overtaken by Germany as the third-biggest economy in the world. "The challenging growth outlook for Japan adds further risk to a delay to our projected timeline for BOJ normalisation in 2024," Singapore-based UOB Global Economics & Markets Research said. "That said, we still expect BOJ’s normalisation to commence only after 2024’s Shunto Spring wage negotiations between major corporations and unions which takes place around March," it added. Shunto is the Japanese term for “spring wage offensive”. The season, which is typically between February and April, refers to a period when thousands of Japanese labor unions simultaneously negotiate wages and working conditions with their employers. Focus article by Nurluqman Suratman Thumbnail image: Large container cranes stand at a port in Tokyo, Japan on 15 February 2024. (FRANCK ROBICHON/EPA-EFE/Shutterstock)

27-Feb-2024

Americas top stories: weekly summary

HOUSTON (ICIS)–Here are the top stories from ICIS News from the week ended 23 February. LyondellBasell to lease California plant to produce recycled resins from waste LyondellBasell has acquired a recycling plant in California from PreZero in which it plans to produce post-consumer recycled resins from plastic waste, the US chemicals major said on Tuesday. Brazil’s Unigel gets green light from creditors for debt restructuring Unigel has agreed a Brazilian reais (R) 3.9 billion ($791 million) debt restructuring with its creditors, which has saved the beleaguered styrenics, acrylics and fertilizer producer from filing for bankruptcy for the time being. Mexico's Orbia to pause PVC investments after weak Q4 results Orbia will be pausing polyvinyl chloride (PVC) capacity expansion due to weak market economics which weighed on its 2023 earnings, the Mexico-based producer said. US Huntsman expects gradual recovery, seeks to boost prices and volume Huntsman expects a gradual recovery to take hold in 2024, in which the company will attempt to pursue higher prices and recover share, the CEO said on Thursday. Pembina to supply Dow Canada net-zero petchem project with ethane Canadian midstream energy firm Pembina Pipeline has entered into long-term agreements to supply Dow’s upcoming net-zero petrochemicals project at Fort Saskatchewan in Alberta province with 50,000 bbl/day of ethane.

26-Feb-2024

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