SAO PAULO (ICIS)–Six years after the disaster at Braskem’s rock salt mines in Brazil’s state of Alagoas, the polymers major could continue facing legal cases which could dent its cash flow, according to analysts at US credit rating agency Fitch. Fitch downgraded the company’s credit rating in December 2023 and placed it on what it called ‘Negative Watch’. This week, following a very damning report issued by Brazil’s Senate following a public enquiry into the Alagoas disaster, the agency’s analysts said that Braskem is likely to face increase costs related to environmental, social, and governance (ESG) challenges. That would add, they said, to the expected poor spreads for global petrochemicals in general, which would be here to stay for at least the remaining of 2024. “Increased ESG risks and potential new claims associated with the geological event in Alagoas could worsen the company’s credit profile,” said Marcelo Pappiani, a Fitch analyst covering Braskem. Fitch said Braskem has since 2019 disbursed approximately Brazilian reais (R) 10.0 billion ($2.0 billion) on relocations, compensation, the closure and monitoring of salt cavities, and environment and other technical matters. A spokesperson for Braskem said to ICIS on Thursday the company would continue collaborating with the authorities in their enquiries about the Alagoas disaster but did not comment on the specifics of the Senate’s report. “Braskem reiterates it was always willing to collaborate with the public enquiry, promptly collaborating providing all the information and measures requested,” said the spokesperson. “The company remains available to collaborate with the authorities, as it has always been.” NEVER-ENDING DISASTERLate on Wednesday, the Brazilian Senate published the final report after its public enquiry into the Alagoas disaster in 2018 which caused thousands to be displaced from their homes in Maceio, the capital’s state. The report is to be voted by the Senate’s plenary on 22 May. Braskem’s rock salt mining caused the displacement of the subsoil; the company used the rock salt for production of caustic soda and polyvinyl chloride (PVC), among others. The 765-page report was highly damning for Braskem, with vice president Marcelo Cerqueira and other seven people accused of environmental crimes as the company’s activities resulted in the geological event. Nearly 15,000 households had to be relocated, and some of Maceio’s neighborhoods evacuated in 2018 remain ghost areas to this day. The report was not only damning for Braskem but also for Brazil’s authorities, especially the National Mining Agency (ANM) as well as the Ministry of Mines and Energy for failing to implement the controls which are required. THE GROUND KEEPS MOVINGTo make matters worse for Braskem, just last December there were further movements in the subsoil which made residents and authorities fear another geological event, a prospect which in the end did not materialize. Those recent events, as well as this week’s report, keep bringing back the Alagoas disaster into the spotlight and seem set to keep haunting the company for several quarters to come, said the Fitch analysts. “We believe the environmental and ecological impacts of the salt mine collapse in the context of sinking land in Alagoas could damage Braskem’s financial position … Uncertainty about current and upcoming lawsuits is high, with negative outcomes potentially pressuring cash flow and adversely impacting the company’s financial results,” they said. “The company could also face social impacts from new claims and reparation costs to victims and neighboring communities, in addition to the 14,446 families relocated to other areas.” The Alagoas liabilities are casting such a long shadow for Braskem that Abu Dhabi’s energy major ADNOC, who seemed the strongest candidate to acquire Novonor’s controlling stake in Braskem, walked away earlier in May, reportedly on the back of those liabilities. “We believe the prospect of Novonor selling its stake in Braskem hit an impasse after the December 2023 salt mine collapse, with ongoing uncertainty regarding the repercussions of the geological event,” said Fitch. Neither the Senate report nor Fitch’s credit rating warning seemed to dent investors’ interest on Braskem’s stock on Thursday though, with shares trading nearly 1.45% higher on the Sao Paulo stock exchange Bovespa by midday local time. Following ADNOC’s announcement it was throwing the towel on Braskem, Braskem’s shares opened the next trading session down more than 14%.

LONDON (ICIS)–ICIS hydrogen editor Jake Stones meets with Hydrogen Europe CEO Jorgo Chatzimarkakis to discuss some of the largest developments to befall the EU hydrogen market this year, namely the progression of the Net Zero Industry Act, the new terms and conditions for the second EU Hydrogen Bank auction, and lastly the results of the pilot auction were published to the market, indicating the first projects to be granted a fixed subsidy via the bank’s mechanism. Over the episode Chatzimarkakis weighs in on key considerations around these topics, such as what the budget might be for the second auction, how the criteria for the new auction has changed compared to the first, and the importance of the pilot auction’s results are for the wider European hydrogen economy.

SINGAPORE (ICIS)–The ample supply of propylene in Asia and new polypropylene (PP) capacities in China are expected to weigh on discussions in southeast Asia over the coming months. Asia C3 to lengthen after PDH restarts in China, SE Asia volumes China PP exports to weigh on SE Asia discussions Asia PP prices to come under pressure in June-July In this podcast, ICIS editors Julia Tan, Jackie Wong and Lucy Shuai discuss current trends in Asia’s propylene and PP markets, and what we can expect going forward. Visit us at Booth 13 at the Grand Ballroom Foyer at the Grand InterContinental Seoul Parnas! Book a meeting with ICIS here.

SINGAPORE (ICIS)–Japan’s economy shrank by 2.0% on an annualized basis in January-March 2024 as domestic consumption and capital spending weakened. Weak yen fuels inflation, hurts consumer spending Core inflation slows but remains above 2% target Japan central bank faces tough challenge of balancing growth and inflation The first-quarter reading reverses the 0.4% year-on-year growth in October-December 2023. On a quarter-on-quarter basis, Q1 GDP posted a 0.5% contraction, according to preliminary data released by Japan’s Cabinet Office on Thursday. Private consumption, which makes up more than half of Japan’s economic growth, fell by 0.7% in the first three months of 2024, marking the fourth straight quarter of decline and extending the 0.4% decline in the last three months of last year. Capital spending – a crucial component of private demand – decreased by 0.8% in the first quarter, reversing the 1.8% expansion in the fourth quarter. Net exports of goods and services fell by 0.3% in the first quarter. The sharp decline of the Japanese yen (Y) to levels not seen since 1990 has raised concerns about increasing living costs and depressed consumer spending. At 04:12 GMT, the yen was trading at around Y154 to the US dollar, strengthening from the recent record low of around Y159 in late April. In March to April, the yen had continued to weaken despite the Bank of Japan’s (BoJ) decision to hike interest rates in March for the first time in 17 years, ending eight years of negative rates. The central bank is expected to proceed cautiously in tightening monetary policy due to the fragile state of the economy. Japan’s nationwide core consumer price index (CPI), which excludes fresh food items but includes energy items, rose by 2.6% year on year, data from the BoJ showed on 14 May. The number represented a deceleration from February’s 2.8% print but remained well above the central bank’s 2% target. “The year-on-year rate of increase in the CPI is likely to be in the range of 2.5-3.0% for fiscal 2024 [year ending 31 March 2025] and then be at around 2% for fiscal 2025 and 2026,” Japan’s Ministry of Finance (MoF) said in a report on 15 May. Meanwhile, underlying consumer inflation, which excludes temporary fluctuations, is expected to increase gradually and then be at a level that is generally consistent with the price stability target of 2%, it said. “If the BOJ also expects GDP to recover in 2Q24, then the BoJ’s focus should remain on high inflation and the JPY [Japanese yen] as a major contributor to high inflation,” Dutch banking and financial information services provider ING said in a note on Thursday. “April inflation is expected to ease quite sharply due to a high base last year, but pipeline inflation indicates upward inflationary pressures building for the coming months,” it said. “We believe that the BoJ is ready to act in July, as it confirms that strong wage growth is boosting household spending,” it added. Japan’s economy is likely to keep growing at a pace above its potential growth rate, with overseas economies growing moderately, as well as financial conditions being accommodative, the finance ministry said in its 15 May report. Focus article by Nurluqman Suratman

HOUSTON (ICIS)–US builder confidence in the market for newly built single-family homes fell sharply in May as higher mortgage rates “hammer” confidence, the National Association of Home Builders said on Wednesday. Mortgage rates averaged above 7% for the past four weeks as a lack of progress on reducing inflation pushed long-term interest rates higher, NAHB said. The NAHB/Wells Fargo Housing Market Index (HMI) fell by six points from April to 45 in May – its first decline since November 2023. HMI readings below the 50 neutral mark indicate that builders are pessimistic, readings above 50 that they are optimistic. The high mortgage rates have pushed many potential buyers back to the sidelines and the market has slowed, NAHB said. Another worry are new code rules that require the US Department of Housing and Urban Development and the US Department of Agriculture to insure mortgages for new single-family homes only if they are built to the 2021 International Energy Conservation Code. This would further increase the cost of construction in a market “that sorely needs more inventory for first-time and first-generation buyers”, said NAHB chairman Carl Harris. NAHB chief economist Robert Dietz added: “The last leg in the inflation fight is to reduce shelter inflation, and this can only occur if builders are able to construct more attainable, affordable housing.” The housing market is a key consumer of chemicals, driving demand for a wide variety of chemicals, resins and derivative products, such as plastic pipe, insulation, paints and coatings, adhesives and synthetic fibers, among many others. Please also visit the ICIS construction topic page and Macroeconomics: Impact on Chemicals. Thumbnail photo source: NAHB

SINGAPORE (ICIS)–Asian oxo-alcohols buyers maintained a wait and watch approach, amid the possibility of added plant capacities in China weighing on market sentiment. The acrylonitrile (ACN) market continues to see limited spot demand in the northeast Asia market. Even as downstream acrylonitrile-butadiene-styrene (ABS) has seen higher production rates recently, ACN producers were unlikely to increase operating rates. For the acrylates downstream, butyl-A market in Asia continues to take direction from Chinese domestic prices. With India’s Bureau of Indian Standards (BIS) requirements preventing Chinese origin imports, cargoes from China were flowing into SE Asia and NE Asia. In this podcast, ICIS editors Julia Tan and Corey Chew discuss trends in the Asia propylene and derivatives markets. Visit ICIS during APIC ’24 on 30-31 May at Booth 13 in the Grand Ballroom Foyer in the Grand InterContinental Seoul Parnas. Book a meeting with ICIS here.

LONDON (ICIS)–The International Energy Agency (IEA) on Wednesday cut its expectations for global crude oil demand growth as demand from the OECD shifted into contraction territory in Q1 and as refinery margins continued to slump into the spring period. Demand slows on global economic health concerns Refinery margins near two-year lows More balanced supply-demand expected in 2025 The IEA now expects global crude demand to slip to 1.1 million barrels/day this year, down from projections of 1.2 million barrels/day in its previous monthly oil forecast, and a further decline from the 1.3 million barrels/day projected in March. The upward revisions seen in February and March were driven by higher demand expectations on the back of improved economic momentum, particularly for the US, with the agency predicting that the market could move into supply deficit. Weaker-than-expected deliveries to OECD countries, particularly in Europe, drove demand from the bloc into the negative in Q1, according to the IEA, while pricing fell through the early spring as economic concerns outpaced the upward impact of geopolitical tensions. Crude futures have fallen from over $90/barrel earlier in the year to $82.53 at midday Brent trading on Wednesday. Refinery margins have also fallen to near a two-year low in the wake of a sell-off across many crude and downstream markets such as middle distillates. Particularly pronounced in Europe, the slump in refinery margins could lead to run rate cuts that undermine the usual seasonal output uptick, the IEA added. “The slump in European refinery margins in April outpaced those seen in the US Gulf Coast and Singapore, reflecting its heavy reliance on diesel output and weak regional demand eroding the premium needed to attract long-haul imports from East of Suez,” the IEA said in its monthly report. European gasoil demand dropped 140,000 barrels/day year on year in the opening three months of the year, following a 210,000 barrel/day decline in Q4 2023. Despite declining demand expectations for 2024, supply growth is expected to be subdued, with a 1.4 million barrel/day increase in non-OPEC+ output offset by a projected 840,000 barrel/day decline in OPEC+ output, amounting to a total increase of 580,000 barrel/day. The latest deliberations among OPEC member states and allied country ministers is expected at the start of June in Vienna, Austria, with decisions taken there potentially setting the tone for the second half of the year. “Despite the recent weakness, our current balances show the call on OPEC+ crude oil at around 42 million barrels/day in the second half of this year – roughly 700,000 barrels/day above its April output,” the IEA added. The agency projects that crude demand growth will rise modestly to 1.2 million barrels/day, but production is likely to reach 1.8 million barrels/day, with 1.4 million of that total expected from non-OPEC+ countries. “Even if OPEC+ voluntary production cuts were to stay in place, global oil supply could jump by 1.8 million barrels/day compared with this year’s more modest 580,000 barrels/day annual increase,” the IEA said. “The United States, Guyana, Canada and Brazil continue to dominate gains, even as the pace of the US supply expansion decelerates,” the IEA added. Focus article by Tom Brown. Thumbnail photo: A crude oil tanker moored off the coast of Cyprus (Source: Danil Shamkin/NurPhoto/Shutterstock)

LONDON (ICIS)–Phosphates prices have been under pressure in India recently, while demand is expected to revive soon. Meanwhile, a lack of ammonia spot demand globally is weighing on the market. Phosphates editor Chris Vlachopoulos talks to senior editor Sylvia Traganida about the state of the phosphates market ahead of the International Fertilizer Association (IFA) annual conference (20-22 May).

SINGAPORE (ICIS)–US President Joe Biden is ramping up tariffs on $18 billion worth of imports from China, including electric vehicles (EVs), semiconductors, batteries and other goods, in a move that the White House said was a response to unfair trade practices and intended to protect US jobs. US tariffs on Chinese EVs to quadruple to 100% Targeted China products account for 4.2% of total US imports Near-term impact on China’s EV exports likely limited “Following an in-depth review by the United States Trade Representative, President Biden is taking action to protect American workers and American companies from China’s unfair trade practices,” the White House said in a statement on 14 May. In response, China’s Ministry of Commerce said that it “will take resolute measures to safeguards its own right and interests”. “The US should immediately correct its wrong actions and cancel the additional tariff measures against China,” the ministry said in a statement. There is growing concern over a potential “vicious cycle of tit-for-tat retaliatory actions” between the world’s two biggest economies ahead of the US presidential elections on 5 November, Japan’s Nomura Global Markets Research said in a note. EVs and associated battery markets are an important growth opportunity for the chemical industry, with chemical producers separately developing battery materials, as well as specialty polymers and adhesives for the environment-friendly vehicles. “With extensive subsidies and non-market practices leading to substantial risks of overcapacity, China’s exports of electric vehicles (EVs) grew by 70% from 2022 to 2023—jeopardizing productive investments elsewhere,” the US said. “A 100% tariff rate on EVs will protect American manufacturers from China’s unfair trade practices,” it added. The new rate represented a quadruple increase from 25% previously. However, the impact on China’s EV exports may be limited in the near term, as the US constitutes a small portion of the Asian giant’s total EV shipments. According to Nomura, the US imported in 2023 $400m worth of Chinese EVs, accounting for 1% of China’s total shipments to the world’s biggest economy. “We expect limited near-term impact, as the targeted $18bn worth of products account for only 4.2% of total US imports from China and less than 1% of China’s total exports,” the Japanese brokerage said. US-CHINA TRADE WAR ADDS TO GLOBAL JITTERS The US and China have been embroiled in a trade war since 2018, when then US President Donald Trump imposed tariffs on around two-thirds of goods imported from China valued at an estimated $360 billion at the time. China has recently faced criticism from major trade partners for operating at “overcapacity,” dumping cheap products, and deepening trade relations with Russia, Nomura said. This leads to growing concerns that China may face similar trade-restrictive measures from other regions. With the EU and UK accounting for about 40% of China’s EV exports in 2023, the EV sector could face increased pressure if Europe follows the US’ lead. Although China’s export growth has been strong this year due to the global tech upswing, resilient external demand, and competitive prices, rising trade tensions may hinder the export sector and prompt more supply chain relocations away from China in the long term. Late last year, the European Commission initiated an anti-subsidy investigation into China’s EVs. Europe’s open approach and ambitious decarbonization goals have made it the main target market for Chinese-made EVs in 2023. The EU accounted for 30% of China’s total EV export volumes last year, down from 36% in 2022, while the UK accounted for 8%, down from 10% in 2022, according to Nomura. Focus article by Nurluqman Suratman Thumbnail image: Aerial photo shows over 2,000 BYD Song Plus new energy vehicles to be exported at Lianyungang Port in east China’s Jiangsu Province, 25 April 2024. (Shutterstock)