AFPM ’22: INSIGHT: Supply chain distortions a concern but US chemical producers cautiously upbeat

SAN ANTONIO, Texas (ICIS)–US producers of chemicals are relatively upbeat about the near-term future but are clearly concerned about the pressure being put on supply chains by Russia’s war in Ukraine.

“Embracing the opportunities, but addressing the challenges”, was the way one executive put it on Monday in a session at the International Petrochemical Conference (IPC), organised by the American Fuel & Petrochemicals Manufacturers (AFPM) trade group.

Torkel Rhenman, executive vice president for intermediates and derivatives and Refining at chemicals major LyondellBasell, suggested that producers were in for a really volatile short term, with crude oil and energy supply disrupted in Europe to an extent that is not yet clear.

Further disruption to gas supplies, still high crude oil prices, and supply chain distortions exacerbated by the conflict do not augur well for a European petrochemical industry that relies so heavily on naphtha feedstock, much of it supplied from Russia.

Theoretical ethylene margins in Europe have dipped negative on higher prices liquids feedstock, with prices not yet adjusted to cover increased costs.

Petrochemical prices are moving up, however, with the weekly ICIS Petrochemicals Index increasing in all regions, most notably in northwest Europe and northeast Asia, parts of the world where liquids cracking predominates.

The feedstock cost advantage in North America is likely to keep margins strong and profits should follow if plant availability is maintained, and demand is not sucked out of markets by inflation in the wider economy.

Before the conflict in Ukraine, producers were looking towards COVID-19 having less of an impact on demand globally.

Demand might have been expected to shift from durables, and maybe even from packaging, towards services.

That sort of growth away from the pandemic probably still applies but is distorted by sky-high crude prices, rising costs globally, and the distortion to critical commodity markets, not the least of which are fertilizers and food.

Cost-effective petrochemical and plastics producers can take advantage of growth away from the pandemic, but they are likely to have a bumpy ride given logistics distortions that will continue to affect global trade.

Chemical companies would be encouraged by comments made by Afshin Molavi, from the John Hopkins School of Advanced International Studies, at the AFPM IPC, who spoke about disruption-proof trends, largely related to demographics.

These are because more than 85% of the world’s population now live in Asia, Africa, Latin America, and the Middle East. In an age of aspiration and urbanisation, demand growth for chemicals, including plastics, might be expected to be assured.

“We’ve never seen this level of urbanisation before,” Molavi said.

It has enormous implications on many levels including the importance of cities as engines for economic growth.

Players in this industry can see the mid- and long-term opportunities while recognising that the world is changing around them.

At the forefront for plastics producers is recycling and the circular economy. The Alliance to End Plastics Waste (AEPW) has made great strides since it was launched in 2019, even being recognised at the UN plastics summit in Nairobi this year as contributing to greater plastics circularity.

More than 90 organisations are involved in this industry-led initiative to end plastic waste in the environment. Its job is to show that there is profit in circular plastics value chains.

The chemical industry has thrived in an age of globalisation and sees further opportunities in global markets. The pandemic exposed vulnerabilities and distorted markets. The conflict in Ukraine adds even more uncertainty not just for now but into a future that may be measured in decades.

Petrochemical producers will be encouraged by Molavi’s assertion that the demise of globalisation is greatly exaggerated.

“It is not simply going to go away,” he said, but he warned, nevertheless, that globalisation may be entering a new phase.

He said too that history has a new velocity: “An extremely different speed of change.”

Insight by Nigel Davis