Energy

SINGAPORE (ICIS)–Saudi Aramco continues its quest for downstream petrochemical investments in the world’s second-biggest economy, adding Hengli Petrochemical in a list of target companies in which the global energy giant intends to acquire a strategic stake. The acquisitions in China are in line with Aramco’s Vision 2030 of expanding its downstream business. Aramco is currently in discussion to acquire a 10% stake in Hengli Petrochemical as the companies signed a memorandum of understanding (MOU) on 22 April covering supply of crude and raw material, product sales and technology licensing. Hengli Petrochemical owns and operates a refinery and petrochemical complex at Liaoning province with 400,000 bbl/day of refining and 1.5 million tonnes/year ethylene capacities. The Chinese producer also operates several chemical plants in Jiangsu and Guangdong provinces. The deal "aligns with Aramco’s strategy to expand its downstream presence in key high-value markets, advance its liquids-to-chemicals program, and secure long-term crude oil supply agreements", Aramco said in a statement on 22 April. Since 2022, Aramco has embarked on major investments in China, which involved taking strategic stakes in companies with major petrochemical projects under way. Chinese companies Planned investments Date of announcement Remarks Hengli Petrochemical 10% stake 22 Apr 2024 Rongsheng Petrochemical Cross acquisition talks – Rongsheng to acquire 50% stake in Saudi Aramco Jubail Refinery Co (SASREF); Aramco to take a maximum 50% stake in Rongsheng’s Ningbo Zhongjin Petrochemical 2 Jan 2024 To jointly develop Zhongjin’s upgrading/expansion and a new advanced materials project in Zhoushan Shandong Yulong Petrochemical 10% stake 11 Oct 2023 Shandong Energy is currently building a refining and petrochemical complex in Yantai called Shandong Yulong Petrochemical – a joint venture project with Chinese conglomerate Nanshan Group Shenghong Petrochemical 10% stake 27 Sept 2023 Rongsheng Petrochemical 10% stake 27 Mar 2023 Deal completed in Jul ’23 Huajin Aramco Petrochemical Co (HAPCO) a $12 billion joint venture, Aramco holds 30% 11 Mar 2022, final investment decision made Project broke ground in Mar ’23; to come on stream in 2026 Aramco CEO Amin Nasser in late March indicated that the company intends to continue making further investments in China’s chemicals sector with local partners, noting that the country has a "vitally important" place in the company’s global investment strategy. The energy giant aims to increase its liquids-to-chemicals throughput to 4 million barrels per day by 2030, which will require a wider footprint in China, the world’s biggest chemical market, analysts said. The investments will fuel further growth in the Chinese economy, they added. Focus article by Fanny Zhang Thumbnail image: The Guoyuan Port Container Terminal in Chongqing, China, on 29 February 2024. (Costfoto/NurPhoto/Shutterstock)

23-Apr-2024

SAO PAULO (ICIS)–Here are some of the stories from ICIS Latin America for the week ended on 19 April. NEWS Brazil’s Petrobras, China’s CNCEC mull petchems, fertilizers joint projects Petrobras and China’s chemicals major CNCEC have signed a memorandum of understanding (MoU) to explore petrochemicals and fertilizers joint projects, the Brazilian state-owned energy major said on Thursday. INSIGHT: Argentina’s petchems hit hardest by recession as country holds breath under Milei Argentina’s petrochemicals are taking a severe hit amid the recession, with falls in demand for some materials of up to 50%, but companies and the country are holding firm under the new President’s economic shock therapy. Brazil's Petrobras re-enters fertilizers sector with restart at ANSA plant Petrobras is to restart its large-scale ANSA fertilizers plant in Araucaria, state of Parana, which has been idle since 2020, the Brazilian state-owned energy major said late on Wednesday. Pemex to remain ‘fiscal challenge’ for Mexico's new administration – S&P Beleaguered finances at Pemex, the Mexican state-owned energy major, will require support from the federal budget for years to come, the analysts at S&P said this week. Argentina’s lower rates helping central bank shore up balance sheet at savers’ expense – economist Argentina’s latest cut to interest rates had more to do with shoring up the central bank’s balance sheet, possible thanks to currency controls implemented by the prior Administration, than the actual control of price rises, according to the director at Buenos Aires-based Fundacion Capital. Latin America's fiscal consolidation at risk of slippages as plans postponed – IMF Latin America’s countries high debt levels require fiscal consolidation plans which in some cases are being postponed, increasing risks for the long-term financial stability of the region, the Director of the Western Hemisphere Department at the IMF said on Friday. Chile inflation falls to 3.7% in March Chile’s annual inflation rate fell in March to 3.7%, down from 4.5% in February, according to the country’s statistics office INE. Brazil’s automotive output barely up in Q1, sales rise 9% Brazil’s petrochemicals-intensive automotive output rose by 0.4% in the first quarter, year on year, to just below 550,000 units, the country’s trade group Anfavea said on Monday. LatAm PE domestic price lower in Chile on cheaper US export offers Domestic polyethylene (PE) prices were assessed lower in Chile because of cheaper US export offers. In other Latin American (LatAm) countries, prices remained steady. Latin America’s February lube demand holds steady Lube demand in Latin America was relatively steady in February at a time of year when consumption typically falls in other markets like the US and Europe. The steady consumption coincided with lower base oils output in the region in February. LatAm PP international prices stable to up on higher freights from Asia International polypropylene (PP) prices were assessed as stable to higher because of increased freight rates from Asia to the region. However, Asian offers remain competitive compared to other origins like the Middle East and the US. Plant status: Dow Argentina shuts HDPE and LDPE plants on technical issues – sources US chemicals major Dow’s subsidiary in Argentina shut on 16 April a high density polyethylene (HDPE) plant due to a mechanical pump failure and a low density polyethylene (LDPE) plant due to technical failure, several sources said. Weather conditions starts to slightly shift PET demand in Latin America Polyethylene terephthalate (PET) prices remained stable in Brazil, with a slight softening in consumption coinciding with stabilized temperatures. However, demand continues to exceed expectations when compared with the corresponding period last year. Weather conditions starts to slightly shift PET demand in Latin America Polyethylene terephthalate (PET) prices remained stable in Brazil, with a slight softening in consumption coinciding with stabilized temperatures. However, demand continues to exceed expectations when compared with the corresponding period last year.

22-Apr-2024

LONDON (ICIS)–Deputy European gas editor Ed Martin and deputy Gas in Focus editor Marta Del Buono discuss European gas highlights from week 16 UK LNG imports low amid demand lull, new EU terminals Czech Republic relies on Ukraine storage due to German gas fee – Czech ministry Are cyberattacks a growing threat to energy companies? Click here to watch

22-Apr-2024

Gas industry representatives say sector must pursue integrated planning for efficient energy transition This means focus must shift from competing against power to how to balance renewables and hard-to-abate sectors European Commission must focus on necessary gas infrastructure investments in next mandate BRUSSELS (ICIS)–The gas industry needs better integrated planning with the electricity sector to achieve the energy transition and ensure efficient and cost-effective infrastructure investments, stakeholders said on 18 April. Discussing the outlook for gas in 2040 and beyond, panellists at the Eurogas annual conference in Brussels discussed the steps needed in the EU’s next political cycle to support a shift to renewable gases. Tatiana Marquez Uriarte, a member of European energy commissioner Kadri Simson’s cabinet, said the conversation had shifted from how to use gas as a transition fuel to how to use renewable fuels to balance electrification. The next European Commission will need to focus on adjusting infrastructure to use biomethane and hydrogen, she said, and handle the decentralised production of these gases. The viewpoint is similar to ongoing discussions in the power sector, where the urgency of upgrading networks, led to the release of the Commission’s grid action plan in November 2023. There is particular focus on distribution grids for the volumes of renewable energy they will carry. Marquez Uriarte said renewable gases such as biomethane would be locally produced and injected into the distribution grids, which meant upgrades and investments were required. “It is clear that we need to decarbonise big time and […] we need to have an integrated planning in order to make sure that we are not building parallel infrastructure,” said Walburga Hemetsberger, CEO of industry group SolarPower Europe. Egbert Laege, CEO of Germany’s SEFE, told the conference that the company was trying to break the chicken-and-egg question around infrastructure by starting to invest the billions of euros required. This means the investment would be done this decade and the infrastructure ready when biogas and hydrogen will be ready for transport. Both Hemetsberger and Laege called for policymakers and industry to take decisions on technologies in order to bring clarity for investors. “We have very much been thinking of electricity and gas systems as separate, and we urgently need to stop that, because I think it is very clear the green transformation will be predominantly driven by green electrons,” Laege said. This would allow the gas industry to learn how to support the transition, clarify where to invest and align infrastructure plans.

22-Apr-2024

HOUSTON (ICIS)–Costs for shipping containers from Asia to South America are soaring while rates are plummeting along the other major trade lanes and Maersk will resume transits through the Panama Canal after administrators said they expect to be back to normal in 2025, highlighting this week’s logistics roundup. ASIA-SOUTH AMERICA CONTAINER RATES Rates for shipping containers from Asia to the US and Europe continue to fall, but rates from Asia to South America are spiking, according to data from ocean and freight rate analytics firm Xeneta and as shown below. Market participants said space along the Asia-South America route has tightened as China is exporting a lot of electric vehicles (EVs) to Brazil. A market participant told ICIS that Chinese automaker BYD has booked more than 10,000 containers to ship EVs to Brazil in April. Autos are typically transported using roll-on, roll-off (RoRo) ships that are designed to carry wheeled cargo. But the surge in EV imports from China has taken up most of the RoRo capacity, forcing China to send autos in containers, which is more expensive. A 20-foot shipping container can hold one or two vehicles, and a 40-foot container can hold up to four standard-sized cars, according to IncoDocs, a shipping solutions provider. ASIA-US CONTAINER RATES FALL Rates from east Asia and China to both US coasts continue to fall, along with rates from Asia to Europe, as shown in the following charts. Asia-US rates from online freight shipping marketplace and platform provider Freightos were largely steady this week, suggesting to the company's head of research that rates might be nearing a floor. Judah Levine, head of research at Freightos, said if diversions continue into the Q3 peak season months, shippers can expect rates to increase relative to this floor. STRAIT OF HORMUZ Global shippers are watching the situation in the Gulf of Hormuz after Iran’s Revolutionary Guard Corps (IRGC) seized a container ship operated by Mediterranean Shipping Co (MSC) near the Strait. "If attacks like this one continue, broaden, or Iran moves to completely close the strait, Middle East container flows would feel the strongest impact," Levine said. A closure would see ports in Kuwait, Iraq and most of the United Arab Emirates (UAE) become inaccessible. Saudi Arabia, with access to their Red Sea port access already challenged, would see their Gulf port access cut off as well. "These disruptions would also impact container hubs in India some of which are part of services that connect south Asia and the Middle East," Levine said. 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. They also transport liquid chemicals in isotanks. PORT OF BALTIMORE The Unified Command (UC) continues to remove containers from the Dali and clear wreckage from the collapsed bridge at the entrance to the Port of Baltimore. The US Army Corps of Engineers (USACE) expects to open a limited access channel 280 feet wide and 35 feet deep by the end of April, and are aiming to reopen the permanent, 700-foot-wide by 50-foot-deep federal navigation channel by the end of May, restoring port access to normal capacity. Source: Key Bridge Response 2024 LIQUID CHEM TANKERS US chemical tanker freight rates assessed by ICIS were stable to lower this week with rates for parcels from the US Gulf (USG) to Rotterdam and the USG to Brazil unchanged. However, rates from the USG to Asia ticked lower and all other trade lanes held steady. On this route, there is no shortage of glycol enquiries. From the USG to Rotterdam, there are bits of part cargo space still available for April. Most of the outsiders’ vessels that were on berth have already sailed, and only the regulars remain at this time as they push tonnage availability. Freight rates are now expected to remain steady for the time being. PANAMA CANAL Wait times for non-booked vessels ready for transit edged higher for northbound vessels and were unchanged for southbound vessels this week, according to the Panama Canal Authority (PCA) vessel tracker and as shown in the following image. Wait times last week were 0.9 days for northbound traffic. The Panama Canal Authority (PCA) said current forecasts indicate that steady rainfall will arrive later this month and continue during the rainy season, which would allow the PCA to gradually ease transit restrictions and traffic could return to normal by 2025. Global container shipping major Maersk said it will resume Panama Canal transits for its OC1 service beginning 10 May, ending its “two-loop” setup it established in January because of transit restrictions brought on by a persistent drought. Please see the Logistics: Impact on chemicals and energy topic page Additional reporting by Bruno Menini and Kevin Callahan

19-Apr-2024

SAO PAULO (ICIS)–Latin America’s countries high debt levels require fiscal consolidation plans which in some cases are being postponed, increasing risks for the long-term financial stability of the region, the Director of the Western Hemisphere Department at the IMF said on Friday. Roberto Valdes, a Chilean economist, said that an important part of fiscal consolidation had to also come from growth plans which could increase Latin America’s perennial lower growth rates, when compared with other emerging regions. Speaking at the IMF’s spring meeting in Washington, Valdes said that the post-pandemic withdrawal of stimulus continued to be a golden opportunity to reduce high debt levels. “However, risks of slippages are increasing as consolidation plans are being postponed. Faster consolidation is needed to put public debt on a stronger footing. Timely fiscal tightening will also allow for faster normalization of monetary policy, he said. “Moreover, to be durable, fiscal adjustment will need to include revenue mobilization and protect key social spending. Maintaining social cohesion should be a centerpiece of fiscal consolidation plans given the region’s still high levels of poverty and inequality.” POOR GROWTH Valdes said the IMF expects Latin America and the Caribbean’s GDP to grow by 2% in 2024, a slowdown from 2.3% in 2023. Moreover, the region’s medium-term growth is projected also at 2%, well below the growth rates of peer economies in other regions, added Valdes, who encouraged countries to be bold with their green energy transitions. “It will be important for the countries to identify structural reforms with high growth payoffs and work hard on building consensus to implement them durably and inclusively. For most countries in the region, boosting growth will require strengthening governance and the business environment to raise the historically low investment levels,” he said. “Comprehensive and well-sequenced climate change strategies will be key to boost growth, including by investing in green minerals and energy sectors. Reforms should also focus on raising participation rates amid slowing population growth and aging, including by tackling gender gaps.” The IMF director went on to say Latin America’s large workforce employed in informal jobs must be part of a comprehensive reform agenda to raise productivity. Increasing security and reducing crime was the other large pending task, he said. Valdes also had some positive feedback for Latin American countries, however. The inflation crisis seems to be behind the region, and this is important as Latin American prior inflation crisis easily spiraled out of control. Hyperinflation is no strange at all to the region. POST-PANDEMIC REBOUND Apart from “significant macroeconomic imbalances” in some countries – hard not to think in Argentina or Venezuela – Latin America has overall showed higher resilience than under previous downturns, said Valdes. “The rebound from the pandemic has been stronger than previously expected. We see this resilience partly as a result of the countries’ progress in strengthening their macroeconomic frameworks. With most economies operating near potential, however, activity in the region has been generally moderating in recent quarters,” he said. “On a positive side, labor markets have remained resilient, with unemployment still at historically low levels. With a weaker external environment and the effect of tight policies to bring down inflation still materializing, we expect growth in Latin America and the Caribbean to moderate further in 2024.”

19-Apr-2024

CHARLOTTE, North Carolina (ICIS)–The US remains an outlier among advanced nations and continues to power forward. Inflation has moderated and central banks are eyeing rate cuts later this year. Global manufacturing has stabilized and is recovering in most major economies. Output is strongest in emerging economies. There are signs that China’s recovery has re-engaged and that Europe’s economy may be stabilizing, with recovery later this year. The US economy is outperforming most other developed countries, keeping the dollar strong. Based on a string of hotter-than-expected readings on inflation, it appears that interest rates will be higher for longer. The headline March Consumer Price Index (CPI) was up 3.5% year on year and core CPI (excluding food and energy) was up 3.8% year on year. Progress on disinflation appears to be stabilizing. Economists expect inflation to average 3.1% this year, down from 4.1% in 2023 and 8.0% in 2022. This is above the US Federal Reserve’s target of 2%. Inflation is forecast to soften to 2.3% in 2025. As a result, interest rate futures are now moving towards fewer cuts. The case is even being made for no cuts. US MANUFACTURING FINALLY IN EXPANSIONTurning to the production side of the economy, the March ISM US Manufacturing PMI came in at 50.3, up 2.5 points from February and above expectations. This expansionary reading ends 16 months of contraction in US manufacturing. Production moved back into expansion, as did new orders. Order backlogs contracted at the same pace. Inventories contracted at a slower pace, which could provide a floor for output. The long and deep destocking cycle could be ending, with the possibility for restocking later this year. Nine of the 18 industries expanded and demand remains in the initial stages of recovery, with obvious signs of improving conditions. The ISM US Services PMI fell 1.2 points to 51.4, a reading indicating slower expansion. The Manufacturing PMI for Canada remained in contraction during March while that for Mexico expanded for the sixth month. Brazil’s manufacturing PMI expanded for a third month. Eurozone manufacturing has been in contraction for 21 months. However, the region appears to be skirting recession. China’s manufacturing PMI was above breakeven levels for the fifth month. Other Asian PMIs were mixed. AUTOMOTIVE AND HOUSING HOLDING UPTurning to the demand side of the economy, light vehicle sales eased in March, and although inventories have moved up, they still remain low. Economists see light vehicle sales of 15.8 million this year, before improving to 16.3 million in 2025. The latest cyclical peak was 17.2 million in 2018. Pent-up demand continues to provide support for this market. Homebuilder confidence is guardedly optimistic. Housing activity peaked in spring 2022 before sharply falling by July 2022. From then and into mid-2023, housing reports were mixed. ICIS expects that housing starts will average 1.45 million in 2024 and 1.50 million in 2025. We are above the consensus among economists. Demographic factors are supporting housing activity during this cycle. There is significant pent-up demand for housing and a shortage of inventory. But mortgage interest rates have moved back up in recent weeks and will hinder affordability and, thus, demand. US RETAIL SALES, EMPLOYMENT STRONGNominal retail sales made another solid gain in March. Sales growth was marked across most segments. Sales at food services and drinking establishments also advanced. Spending for services is holding up, but the overall pace may be slowing. Job creation continues at a solid pace, and the unemployment rate is still at low levels. There are 1.4 vacancies per unemployed worker, off from a year ago but at a historically elevated level. This is still fostering wage pressures in services. Incomes are still holding up for consumers. Our ICIS leading barometer of the US business cycle has been providing signals that the “rolling recession” scenario in manufacturing and transportation may be ending. The services sector continues to expand, albeit at a slower pace. Real GDP rose 5.8% in 2021 and then slowed to a 2.5% gain in 2022. The much-anticipated recession failed to emerge and in 2023, the economy expanded by 2.5% again. US economic growth is slowing from the rapid pace in the third and fourth quarters, but those gains will aid 2024 performance of an expected  2.4% increase. The slowdown in quarterly economic activity suggests that in 2025, the economy should rise by 1.8% over average 2024 levels.

19-Apr-2024

LONDON (ICIS)–Europe stock markets shifted onto bearish footing in morning trading on Friday in the wake of explosions in Iran that escalated fears of ever-higher tensions in the Middle East. Oil prices settled after the initial shock. Explosions in Iran overnight sent crude pricing surging more than $3/barrel during the Asia trading window. Iran state media reported explosions near air bases close to the city of Isfahan, which also operates nuclear facilities. Watchdog the International Atomic Energy Agency (IAEA) stated that there has been no damage to any nuclear facility, but urged caution. “IAEA can confirm that there is no damage to Iran’s nuclear sites. Director General  Rafael Mariano Grossi continues to call for extreme restraint from everybody and reiterates that nuclear facilities should never be a target in military conflicts,” the agency said in a statement. Reports have also emerged in the media of explosions in Iraq and Syria. Speaking at a G7 briefing in Capri, Italy, this morning, US Secretary of State Anthony Blinken declined to comment on the developments beyond disavowing US involvement. “I’m not going to speak to that, except to say that the US has not been involved in any offensive operations,” he said. No parties have officially taken responsibility for the blasts, but the incident is the latest in a volatile week in the Middle East, which began in the wake of Iran’s drone strikes in Israel on 13 April, which the Israel Defence Force (IDF) confirmed had struck the Nevatim air base. Crude oil pricing has whipsawed in the face of the market unrest, breaching the psychological $90/barrel mark before receding, before surging close to that watermark again when news of the blasts in Iran broke. With no reprisals currently threatened, oil futures pricing quickly receded, dropping from $89.42/barrel for Brent at 3:17 BST to well under $87 in midday trading. A build in crude stocks also weighed on sentiment, while diminishing expectations for imminent central bank rate cuts in the face of stubborn inflation has also slowed the pulse of the global economy. Crude demand growth has been subdued this year but substantial downward shifts to supply could substantially tighten conditions, according to crude analysts at ING. "If these reports [of explosions] turn out to be true, fears over further escalation will only grow, as well as concerns that we are potentially moving closer towards a situation where oil supply risks lead to actual supply disruptions," the bank said in a note on Friday morning. European public markets were also subdued, with Germany’s CAC 40 and the UK’s FTSE 100 indices trading down 0.65% and 0.45% respectively as of 13:30 GMT. Europe chemicals stocks also weakened in early trading at a more modest level relative to general markets. The STOXX 600 chemicals index clumped 0.15% compared to Thursday’s close, with shares in seven of the 30 component companies down at least 1-2%. The weakest performer on Friday so far was Solvay, which saw shares shed 3.39% of their value as of 13:17 BST. Thumbnail photo: The city of Isfahan, Iran. Source: Morteza Nikoubazl/NurPhoto/Shutterstock

19-Apr-2024

DUBAI (ICIS)–Importers in the Middle East are being hit by surging costs of transporting goods by land through Saudi Arabia from the Jebel Ali port in the UAE, amid a shipping crisis in the Red Sea to the west of the region. Increased demand meets truck shortage Polymer market activity slow to pick up after Eid holidays Logistics woes may spill into Strait of Hormuz as tensions escalate Buyers in Jordan, Syria and Israel have been relying more on this route to take cargoes coming in from elsewhere in the world. Most shipping companies avoid the Red Sea fearing attacks on commercial vessels by Yemen’s Houthi militants since late last year following the outbreak of the Israel-Hamas war. GCC suppliers are the main exporters of PP and PE to the East Mediterranean region and have been selling most of the material through truck via Saudi Arabia, with limited quantities sold via the CFR (cost & freight) Aqba route. The Red Sea, which has the Suez Canal in the north, offers the shortest route between Asia and Europe and shipping access to the East Mediterranean markets. From the Jebel Ali port in Dubai to Jordan, land freight has more than doubled in recent months, a Jordanian trader said. ”We’ve seen jumps from $60-70/tonne [trucking] cost from Jebel Ali, to Jordan, via Saudi Arabia, to … as high as $150/tonne when ordering non-prime material for both PP and PE  from a major UAE-based supplier,” the trader said. The Middle East observed the Muslim fasting month of Ramadan from 10 March, during which working hours were reduced, culminating with the Eid ul-Fitr holiday during the second week of April. “Now that we are back from Eid, the expectations are towards some decreases in the [land freight] costs,” the trader said. In March, the spike in freight cost was due shortage of trucks following a sharp spike in demand to transport essential goods by land for Israel from Jebel Ali via Saudi Arabia. This shortage was exacerbated by Saudi Arabia’s existing ban on trucks older than 20 years from transiting through its territories, which came into effect in 2023. Trucking demand for polymer cargoes from Oman and the UAE to Egypt via Saudi Arabia also increased, causing a sharp increase in freight cost. “The cost of [transporting] polymers by truck to Egypt was around $80-100/tonne before March, but it increased to $120-140/tonne ahead of Ramadan Season,” a regional trader said. Saudi Arabia’s own cost of transporting polymer cargoes, however, was not affected, market players said, despite a lot of trucks mobilized since the beginning of the year to transport material inland from plants located on the west coast to ports situated on the east coast, so be able to ship them to customers in Asia. Overall polymer market activity has yet to pick up as the Gulf Cooperation Council (GCC), East Mediterranean, and North African markets are just returning from the Eid holiday. Concerns are now shifting toward repercussions of a potential full-on war between Iran and Israel, which could further impact logistics in the region, specifically in the Strait of Hormuz, which could cause oil and feedstock prices to soar. Explosions in Iran, Syria and Iraq were reported early on Friday, causing oil prices to surge by more than $3/barrel in early trade, with Brent crude breaching $90/barrel before easing down. According to media reports, Israel was behind the explosions in Iran. The Strait of Hormuz, which connects the Gulf of Oman and the Persian Gulf, is bordered by Iran, Oman and the UAE. It is an important chokepoint for energy trades from the Middle East. On 13 April, Iran’s Revolutionary Guards seized Portuguese-flagged container ship MSC Aries in the key shipping lane which Tehran says is linked to Israel. On the same day, Iran had launched drones and missiles on Israel, which it blames for a fatal attack on an Iranian diplomatic facility in Damascus that killed a high-ranking member of Iran's Islamic Revolutionary Guards and eight other officers. Focus article by Nadim Salamoun and Pearl Bantillo Click here to read the ICIS LOGISTICS topic page, which examines the impact of shipping disruptions on oil, gas, fertilizer and chemical markets.

19-Apr-2024

LONDON (ICIS)–An EU probe into China wind turbines and a US anti-dumping investigation against epoxy from China and other Asian countries are some of the latest examples of the growing use by policymakers of regulatory measures to support local industry against allegations of unfair competition. Producers in western regions, particularly the EU, are increasingly pushing back against the impact of lower-priced imports from China on local markets, with regulators looking to tariffs and policy measures to ease industry struggles and diversify supplies. The EU’s probe into Chinese wind turbines under the Foreign Subsidy Regulation and the US anti-dumping case for epoxy against China, South Korea, Taiwan, Thailand and India are fresh examples of this. Asia Pacific suppliers have gained ground in the European epoxy market since the pandemic, and the downstream wind sector has also become increasingly pressured. As reliance in those spaces increasingly shifts to external markets for supply, questions emerge about the viability of local players in the face of these dynamics, as well as the implications for the energy transition and whether domestic supply is structurally adequate to meet future demand. STRING OF ADD CASES In the wake of these pressures, there has been a wave of Anti-dumping investigations in the chemicals sector in the west, mainly aimed at China. Olin and Westlake have submitted anti-dumping duty (ADD) petitions for epoxy in the US against China and other Asian countries, based on allegations that producers in these countries have sold large volumes of product at “unfairly low prices” in the US market, which is claimed to have caused injury to US producers/industry. On the face of it, the trade data does not support claims of substantial dumping of volume, with pretty low imports from three of the five key Asia-based manufacturers. However, there is growing speculation that a similar ADD claim is afoot in Europe, but there has been nothing official on this so far. Run rates have been reduced in Europe for a prolonged period to manage high costs, low demand and increased import flow from China/Asia. CHINA EPOXY, EUROPE CAPACITY Chinese epoxy is exported to Europe at around €1,900/tonne DDP in April and in some cases below. This is around €500-600/tonne below European levels and at least a few hundred euros cheaper than other Asian sources. If an anti-dumping investigation were to come in Europe and duties were to be implemented, could the EU structural capacity meet its demand needs between now and 2030? Structural nameplate capacity for epoxy in Europe is forecast to be slightly over 700,000 tonnes/per year, potentially with an additional 20,000-30,000 tonnes/year if a new Chimcomplex epoxy project is finalised. This stands against an actual consumption estimate of 466,000 tonnes/year by 2030, according to ICIS S&D data, although total actual production is expected to remain closely aligned to demand. “If an ADD were to go ahead in the EU, the region could be self-sufficient from an epoxy perspective,” said ICIS Aromatics and Derivatives Consultant Michele Bossi. CHINA EPOXY GAINS SHARE IN EU As we have seen with the ramp up in Chinese/Asian epoxy imports into Europe since the pandemic, there is potential that China could eat into the key EU downstream wind sector, with Chinese wind turbines being offered up to 50% lower than European-made wind turbines and with deferred payments of up to three years. European manufacturers are not allowed to offer deferred payments due to OECD rules. These favourable conditions for Chinese wind turbines are likely to sway wind park developers in the EU and the wider west. China is benefitting from subsidised materials up and down the chain, access to cheap land, financing and energy, according to a wind energy player, who said “something needs to be done to protect the Western OEMs and the supply base”, adding that some western OEMS claim to be victims of Chinese competition but are moving their production to China in order to be competitive. However, it stressed that “it is a very short-term strategy and will only result in losing to China.” Excess capacity of subsidised Chinese wind turbines “is not only dangerous for our competitiveness. It also jeopardises our economic security,” said Commission Executive Vice-President for Competition Margarethe Vestager and new inquiry Commissioner. “The EU probe into potentially unfairly subsidised Chinese wind turbine manufacturers is to ensure a fair competition and level the playing field between European and Chinese manufacturers eager to enter the European market,” said the official WindEurope spokesperson. EU WIND PROBE UNLIKELY TO AFFECT THE ENERGY TRANSITION “The number of new wind projects expected to come online before 2030 – and therefore to meet the EU’s 2030 targets – is largely independent of the origin of the wind turbine manufacturers,” highlighted the official spokesperson at WindEurope. It added that bottlenecks for additional projects coming online before 2030 are linked to other factors such as grid build out and grid connection queues, permits for new wind farms; (maritime) spatial planning and the availability of sufficient space for new wind energy projects. Although the EU Wind Energy package has provided action points to address these areas and support the sector. EU ENERGY TARGETS WITHIN REACH FOR 2030 WindEurope forecasts that the EU will come close to reaching its energy targets for 2030, irrespective of the EU probe into Chinese wind turbines, with the EU expected to install 29 GW a year on average over 2024-30. This will bring the EU’s installed wind capacity to 393 GW in 2030, compared to the 425 GW needed to deliver Europe’s climate and energy targets. Improvements in permitting and a rebound in investment has enabled the “EU wind energy targets of 2030 to be within reach”, according to WindEurope. OTHER SUPPORTThe bloc’s Net-Zero Industry Act – intended as a response to the US Inflation Reduction Act will introduce non-price criteria in renewable energy auctions and public procurement, which means that countries will need to apply this to at least 30% of volumes auctioned each year. This criteria is intended to help the EU’s clean-tech industries compete by prioritising elements such as environmental sustainability, resilience, cybersecurity, business conduct, innovation and ability to deliver on time, alongside the overall project price. The Carbon Border Adjustment Mechanism (CBAM) from 2026 should help level out the playing field of complying with EU emissions rules, requiring non-EU producers importing into the bloc to declare emissions and buy certificates to pay for them. While the EU is providing support to the wind sector to promote domestic demand and take measures to level-out the playing field, the same is not the case in the chemicals/epoxy sector. The inflow of cheap Chinese imports into the west is part of a bigger issue, with structural overcapacity mainly in China against a weak demand backdrop globally and a high-energy and raw material cost environment in Europe  putting the region on the back foot versus other regions. Lack of cost competitiveness in the chemicals sector in Europe continue to weigh heavily on western players, with two chemical giants ExonnMobil and SABIC the most recent casualties, with some cracker and derivative operational closures. "Everyone is welcome to trade with Europe. But they have to play by the rules,” said Vestager, Executive Vice President of the European Commission in her recent speech. But tariffs can only help to some extent, with  regional cost differences and overcapacity mainly in China structural issues that still need to be addressed. Additional reporting by Aura Sabadus, Gretchen Ransow, Michele Bossi, Will Beacham, Tarun Raizada and Nigel Davis Europe Graphics: Yashas Mudumbai

19-Apr-2024