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BLOG: Assessing confidence and the China PE demand recovery:
      more scenarios are needed
BLOG: Assessing confidence and the China PE demand recovery: more scenarios are needed
SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson. Because China is a managed economy there must be a high level of confidence in many aspects of how the economy is being managed. How strong will confidence be among consumers and investors during 2023 given the bursting of the property bubble and the sudden reversal of the zero-COVID policies and what’s followed that decision? The strength of this intangible will probably play the defining role in determining the strength of China’s economic recovery this year, making firm number-based judgements impossible. But we do have some hard numbers on the amount of excess savings built up since zero-COVID began – $2.6 trillion of additional bank deposits, according to a 24 January Financial Times article. The FT, however, quoted analysts who said that when you discount money transferred into banks from high-risk financial products, mainly in real estate, and the “natural growth” in savings due to higher incomes, this left just $200 billion of potential “revenge spending”. How good will China’s exports be in 2023? Has inflation peaked in the West or might a strong China recovery reignite global inflation and dampen exports worth 20% of China’s GDP? We’ve probably never before faced such an uncertain China outlook, which is why we’ve extended my range of scenarios for China’s polyethylene (PE) demand in 2023, as the main chart in today’s post  shows, from the usual three to four scenarios: Scenario 1, the ICIS base case, sees 4% average growth across the three grades of PE. This would leave this year’s total demand at around 39m tonnes, up from 2022’s 38m tonnes (note that what should be close to the final demand numbers for last year are now available. This follows the publication of the full trade data for 2022 and ICIS estimates of January-December local production). · Scenario 2 (our preferred scenario) would see 2023 demand at approximately 38.5m tonnes (2% growth) with Scenario 3 (minus 2%) at 37m tonnes and Scenario 4 (minus 5%) at 36m tonnes. And we, of course, need four scenarios for China’s net PE imports with high-density (HDPE) the most vulnerable to a steep decline because its capacity increases over demand have been the highest in the three grades of PE (also the blog post for the relevant slide). Last year’s net HDPE imports were 5.6m tonnes. They could be as high as 5.1m tonnes in 2023 are as low as 3.4m tonnes. Anything in the region of 3.4m tonnes would require a razor-like focus on the HDPE net import markets other than China, which are also detailed in today’s post. 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.
US Eastman to cut workforce as destocking continues in Q1
US Eastman to cut workforce as destocking continues in Q1
HOUSTON (ICIS)–Eastman plans to reduce its workforce as part of a $200m cost-cutting programme that will include what it calls an “improved asset footprint” – all part of its response to a manufacturing recession in which destocking has continued into the first quarter, the US-based specialty chemicals producer said on Thursday. One component of the programme should reduce manufacturing and supply-chain costs by $125m, Eastman said. This component should achieve the following: More efficient operations associated with a slow demand environment. Optimise Eastman’s supply-chain network. Lower the company’s planned manufacturing maintenance schedule when compared with 2022. Improve asset footprint to serve customers and lower costs. Eastman did not elaborate on how it would improve its asset footprint and whether that would entail plant shutdowns. Another component of the programme will reduce non-manufacturing costs by $75m. Eastman plans to achieve these cost savings by cutting discretionary external spending and by workforce reduction. Eastman did not specify the magnitude of the workforce reductions. DESTOCKING AMID MANUFACTURING RECESSIONThe cost-cutting programme is Eastman’s response to what it calls a manufacturing recession that began in the fourth quarter. The company’s customers in North America, Europe and China undertook inventory destocking that went beyond the levels that are typical of the fourth quarter. Eastman’s Advanced Materials segment noted aggressive customer inventory destocking for specialty plastic product lines, particularly in end-markets that serve consumer durables. The segment makes polyvinyl butyral (PVB), copolyesters such as Tritan and cellulose esters such as Treva. The company’s Additives and Functional Products segment saw destocking especially in building, construction and personal-care end-markets. The segment makes hydrocarbon resins, rosins, cellulose esters and additives used in inks and coatings. Eastman’s Chemical Intermediates segment saw destocking across all of its key end-markets. The segment makes acetic acid, acetate esters, alkylamines, plasticizers, oxo-alcohols, acetyls and glycol ethers. Eastman’s fourth segment, Fibres, did not report any fourth-quarter destocking. The segment makes acetate tow and cellulosic fibres. OUTLOOKEastman expects aggressive inventory destocking to end in the first quarter. Volumes should recover modestly in the back half of the year. Inflation for 2023 should moderate from 2022 levels, during which Eastman’s costs rose by $1.3bn for raw materials, energy and distribution. Pensions and other post-retirement benefits should increase by $110m. Eastman expects additional headwinds from unfavourable exchange rates. Nonetheless, 2023 adjusted earnings/share should increase by 5-15%, excluding the 75 cent hit from pensions.
Tata Chemicals Europe, Vertex Hydrogen sign low carbon
      hydrogen deal
Tata Chemicals Europe, Vertex Hydrogen sign low carbon hydrogen deal
LONDON(ICIS)–Tata Chemicals Europe and Vertex Hydrogen announced that the two companies have signed a Heads of Terms agreement for the offtake of over 200MW of low carbon hydrogen. The offtake agreement will see Vertex supply Tata Chemicals with the low carbon hydrogen within the HyNet hydrogen cluster located in the northwest of England. Tata Chemicals has stated that the company is seeking to achieve net zero manufacturing by 2030. Vertex is expecting to be able to delivery nearly 4GW of low carbon hydrogen by 2030, with the UK Government having set targets of 10GW of hydrogen production capacity by 2030, of which at least 5GW will be renewable hydrogen. The hydrogen will be produced at the Stanlow Manufacturing Complex in Ellesmere Port and will have a capacity of 1GW over two units by 2026.
PODCAST: Bulgarian energy developments in doubt as country
      gears for new elections
PODCAST: Bulgarian energy developments in doubt as country gears for new elections
LONDON (ICIS)— In 2022, when Gazprom stopped supplies to Bulgaria, the country switched at short notice from nearly full dependence on Russian gas to complete diversification. It commissioned a new interconnector with Greece, tapped LNG imports and ramped up off-takes of Caspian gas. More recently it signed a deal for access to Turkey’s infrastructure, which could open up a new supply route to southeast Europe. However, Luka Dimitrov, senior energy journalist focusing on southeast Europe tells regional gas market specialist Aura Sabadus that the political instability combined with a number of controversial measures taken in recent weeks raise concerns about the future of Bulgaria’s energy sector and that of the entire region.
US Dow expects destocking to continue in Q1
US Dow expects destocking to continue in Q1
HOUSTON (ICIS)–Dow expects destocking to continue during the first quarter after seeing a significant amount of inventory purging during the fourth quarter, the US-based producer said on Thursday. “We are not at a restocking state yet,” said Jim Fitterling, Dow CEO. He made his comments during an earnings conference call. Such destocking has already been noted by the Federal Reserve in its Beige Book survey of economic conditions and by RPM International, US-based producer of paints, coatings, adhesives and sealants. Dow’s comments provide more proof that customers are working down their stocks beyond what is typical during the end of the year. “Manufacturing activity in the last half of December really slowed, so you could see that in order patterns. And that stayed slow in the first half of January,” Fitterling said. Such downstream destocking had led Dow to lower operating rates by 10% during the fourth quarter, he said. Destocking accounted for two-thirds of the quarter-on-quarter decline in Q4 earnings before interest, tax, depreciation and amortisation (EBITDA), said Howard Ungerleider, CFO. The rest of the decline was caused by the seasonal slowdown that is typical in the fourth quarter. Manufacturing activity is picking up, and the company is seeing signs of that in its order book. However, the industry is not in a restocking state, Fitterling said. He expects the market will enter such a state as the year progresses. Typically, the second and third quarters are Dow’s highest volume quarters. Also, markets do not have a lot of excess inventory. For Dow’s Performance Materials and Coatings segment, destocking represented about 50-60% of the slowdown that it saw in the fourth quarter, Fitterling said. “The destocking is going to work itself through in the first quarter, and then I think you will see us get back to more normal seasonality.” On silicones and siloxanes, Dow saw destocking in downstream end-markets such as personal care and home consumer-goods as well as in building and construction. “I think that will rebound as the year progresses,” Fitterling said. For the company’s polyethylene (PE) business, it expects a little bit of destocking to continue into the first quarter, Fitterling said. DESTOCKING EXTENDS BEYOND DOWRPM noted that normalising supply chains are causing some of its customers to slow down purchasing. That has allowed some companies to return to the inventory-management practices that preceded the pandemic. Already, demand has fallen for products made by some of RPM’s businesses, and the company expects that trend will continue during its fiscal third quarter, which runs through February. RPM also is adopting more normal buying patterns, and it is adjusting its inventory levels to more typical levels, the company said. As a result of those inventory adjustments, the company is lowering production rates at some of its plants. It could take six to nine months for RPM to bring inventory levels back to where the company wants them. The Federal Reserve noted in its Beige Book that some companies are starting to bring their inventories back to pre-pandemic levels. Fed contacts in the Atlanta district said that they plan to bring their inventory levels back to more normal levels. These companies plan to return to just-in-time inventory management instead of the just-in-case practices that characterised the pandemic. The Atlanta district includes the states of Georgia, Florida, eastern Tennessee and the southern parts of Mississippi and Louisiana. SLOWER GROWTH A return to normal inventory practices is not the only factor driving inventory destocking. In the Federal Reserve’s Richmond district, a fabric producer said some of its customers are reducing inventory levels because of concerns about lower demand. The Richmond district includes the states of Virginia, Maryland, North Carolina and South Carolina. A chemical producer in the Boston district noted weakening demand from the construction and automobile industries. Competing producers are shedding excess inventory. The Boston district includes the states of Massachusetts and others in the northeastern US. Kevin Swift, senior economist for global chemicals at ICIS, expects the country will enter a mild recession in 2023. Forward-looking indicators also point to a slowdown. The ICIS Leading Business Barometer (LBB) declined for the 11th month in January, and it continued to signal a recession in the upcoming months The US manufacturing purchasing managers’ index (PMI) was below 50 for the second consecutive month in December, signalling continued contraction Manufacturing indices declined at three Federal Reserve Bank districts, as shown in the following table Federal Reserve Bank Survey Title Jan Reading Richmond Fifth District Survey of Manufacturing Activity -11 Philadelphia Manufacturing Business Outlook Survey -8.9 New York Empire State Manufacturing Survey -32.9  Focus article by Al Greenwood Thumbnail shows storage tanks.
Smaller European locations likely to be part of Dow shutdown
      plans - CEO
Smaller European locations likely to be part of Dow shutdown plans – CEO
LONDON (ICIS)–Plans by Dow to cut costs through headcount reduction and shutting down some assets is likely to hit smaller-scale operations in its European portfolio amid a wider global move, the CEO of the US-based chemicals major said on Thursday. The company announced more detail on plans to realise $1bn in cost savings through 2023, with $500m in earnings before interest, tax, depreciation and amortisation (EBITDA) expected to be driven through a 2,000-person headcount reduction, some shutdowns and process improvements The company intends to save an additional $500m by decreasing turnaround spending, reducing raw materials purchases, and reducing some spending. Intended to prioritise business operations towards more cost or growth-advantaged markets in the wake of the shifting energy cost landscape seen since the onset of the UKraine war, the cost-cutting measures are likely to eliminate around 6% of the company’s global workforce. The measures will not be exclusively focused on Europe, but the shifting dynamics in the region as governments struggled to adapt to the loss of most of the cheap Russian gas that powered the continent was a major factor in Dow’s financial results last year, according to CEO Jim Fitterling. Around 60% of the nearly $3bn decline in 2022 company earnings before interest and taxes (EBIT), to $6.59bn, was related to energy pricing in Europe and the cooling effect that has had on demand, he said. Conditions improved in the fourth quarter on the result of a warmer winter and more favourable inventory conditions in the region, but long-term competitiveness remains a concern. “They’ve done an admirable job, especially in Germany, switching away from Russian natural gas over to other sources,” Fitterling said, speaking on an investor call on Thursday. “So that has helped, but we still have to take a look at long-term energy policies and work with governments [and] EU member states on energy policies because we’re a long way away from long term competitiveness in Europe,” he added. SMALLER ASSETS IN THE FRAME No specific locations or sites have been publicly earmarked for closure, with more clarity expected before the end of the quarter, but decisions that are in the process of being worked through so far largely fall on smaller European assets, Fitterling said. Dow has substantial integrated cracker operations in Terneuzen, Netherlands, Tarragona, Spain, and Bohlen, Germany, as well as substantial operations in Schkopau and Stade in the country. The company also operates smaller sites, such as Barry, UK, and Leuna, Germany,. Even within the larger integrated complexes, there are units that are seeing increasingly challenged economics. Trinseo announced plans in September 2022 to close its Bohlen styrene plant, with potential implications for Dow’s benzene operations at the site. The company’s Stade propylene oxide operations also utilise older chlorohydrin technology, which is less economical than the process technologies used at newer production units in the space. The focus of the closure plans is on units that are likely to struggle to remain competitive irrespective of energy price movements, according to Fitterling. “The decisions we announced today around restructuring, we’ve looked at locations that are going to be challenged in any scenario and take actions on those,” he said. The company is less focused on its larger operations, despite the economics of its European cracker operations standing as less competitive than lower-cost North American units, but discussions are ongoing with European governments about improving the long-term economics of those sites. “On large sites like our large cracker sites, we’re still able to run cashflow positive, and we’re working hard on the energy situation. We’ll continue to analyse that through this year and see what kind of work we can do with the governments there to make them more competitive long term,” Fitterling said. The headcount reduction plans are not focused exclusively on Europe, but conditions in the region are a large part of the impetus for the moves, he added. “The 2,000 headcount reduction is not all specific to Europe, although Europe is a big part of the earnings decline that is driving us to take these actions,” he said. “The site and asset decisions we’ve made so far are really smaller-scale locations where we know they will be challenged through the year. We haven’t released the list of those, we’re working through that with the European works councils, but we will be doing that as we get towards the end of this quarter,” he added. Front page picture: Dow facilties in Delfzijl, in Groningen, the Netherlands Source: European Chemical Site Promotion Platform (ECSPP) Focus article by Tom Brown Clarification: Recasts list of smaller Dow sites in paragraph 11.
Dow to cut jobs, close plants in latest cost saving drive,
      with focus on Europe
Dow to cut jobs, close plants in latest cost saving drive, with focus on Europe
LONDON (ICIS)–Dow plans to cut 2,000 jobs from its workforce and close plants, potentially in Europe, as part of its $1bn 2023 cost saving drive, it said on Thursday. “We are taking these actions to further optimise our cost structure and prioritise business operations toward our most competitive, cost-advantaged and growth-oriented markets, while also navigating macro uncertainties and challenging energy markets, particularly in Europe,” said CEO Jim Fitterling. Dow said that structural cost improvements of $500m would relate to a global workforce reduction of approximately 2,000 roles and increased productivity. It specified “Shutting down select assets, while further evaluating Dow’s global asset base, particularly in Europe, to ensure long-term competitiveness and enhance cost efficiency.” Operating expense reduction in the plan total $500m with a drive to decrease plant turnaround spending, cut purchased raw materials, logistics and utilities costs and “Aligning spending levels to the macroeconomic environment.” The company will take charges in the first quarter of 2023 of between $550m and $725m for costs associated with the cutbacks and asset write-downs and write-offs. It said that longer term it remains on track to grow underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) by more than $3bn by 2030 and cut its carbon emissions by 30% from a 2005 baseline. It aims for carbon neutrality by 2050. In 2022, Dow’s EBITDA fell by 24% by $9.3bn with a 57% year on year slump in the fourth quarter. Dow’s volumes in Q4 2022 were down 8% globally but 18% lower in its Europe, the Middle East, Africa, and India (EMEAI), region. This will reduce Dow’s workforce, which currently stands at 35,700, by 6%. Thumbnail image shows Dow company name on floor of New York Stock Exchange (credit: Richard Drew/AP/Shutterstock) Recasts to include total number of Dow employees and the percentage of jobs to be cut.
HH2E announces new renewable hydrogen production project in
      Germany
HH2E announces new renewable hydrogen production project in Germany
LONDON (ICIS)–German energy company HH2E has announced that it intends to build a renewable hydrogen production facility in the country. The HH2E Thierbach project will be located in the Borna region in the east of Germany will have an initial capacity of 100MW by 2025, potentially scaling to over 1GW by 2030, HH2E said in a press release. The first phase of the project will be supported by two investors, Foresight and HydrogenOne. The hydrogen that will be produced from the facility “will serve renewable hydrogen customers and offtakers, including leading players in the mobility sector, large-scale energy and industrial customers such as the chemical industry and commercial air and road transport operators,” HH2E said. The final investment decision (FID) is due to be taken later this year with the preliminary investment decision (PID) already having been approved by the consortium. This will be HH2E’s second such project in Germany after the Lubmin project, with both set to have a similar technology-mix and design to reduce risk and implementation time. The Lumbin project, announced in June last year, will have the same capacity as the Thierbach project and aims to produce over 600,000tonnes/year of renewable hydrogen by 2030 by combining a 50MW alkaline electrolyser with a 200MWh high-capacity battery. HH2E are aiming to have 4GW of renewable hydrogen capacity in Germany by 2030, with Germany expecting to have 5GW of renewable capacity over the same time frame.
Enagas launches renewable gas guarantees of origin platform
Enagas launches renewable gas guarantees of origin platform
LONDON (ICIS)–Iberian energy transmission system operator Enagas GTS has launched its platform for the registration to the system of guarantees of origin for renewable gases, it announced in a press release on 25 January. The platform allows for the registration of account holders and the registration of production devices onto the system which is applicable to biogas, biomethane, and renewable hydrogen. The platform is in line with the Spanish Government’s +SE Plan (More Energy Security Plan) which was presented in October last year. The +SE Plan includes 73 energy security measures grouped into six main objectives: savings and efficiency, transformation of the energy system, extension of protection to citizens, fiscal measures, transformation of industry to renewable energies and hydrogen, and solidarity with the rest of Europe. The issuances of guarantees of origin for production devices that are registered in the system is due in March, Enagas said, with the ability to consult on the location, typology, capacity, and commissioning date of the renewable gas production asset prior to March. Guarantees of origin have been muted as a possible mechanism to boost the development of renewable gas production in a similar way to renewable electricity generation assets such as wind farms, solar farms, and hydro-electricity plants. Spain has ambitions to become the first renewable hydrogen hub in Europe, with an abundance of renewable potential as well as the €2.5billion H2MED hydrogen pipeline project due to move 2million tonnes/year of renewable hydrogen between Portugal, Spain, France, and Germany by 2030.
South Korea Q4 GDP growth slows to 1.4% on year, contracts
      0.4% on quarter
South Korea Q4 GDP growth slows to 1.4% on year, contracts 0.4% on quarter
SINGAPORE (ICIS)–South Korea’s economy posted a slower annualized fourth-quarter 2022 growth of 1.4%, bringing its full-year pace of expansion to 2.6%, based on the government’s advance estimates released on Thursday. Year-on-year growth for the quarter was less than half the 3.1% pace set in the third quarter, data from the Bank of Korea (BoK) showed. On a quarter-on-quarter basis, the industrialised economy shrank 0.4% in October-December 2022, reversing the 0.3% increase in the third quarter, weighed down by declines in private consumption and overall trade. Exports declined by 5.8% during the period, while imports fell 4.6%. Manufacturing posted a 4.1% contraction during the period, mainly due to decreases in computer, electronic and optical, and chemical outputs. Construction grew 1.9% quarter on quarter. South Korea’s economy is expected to post a weaker growth of below 1.7% in 2023, according to the Bank of Korea, in line with the global economic slowdown amid high inflation and interest rates. Click here to read the Ukraine topic page, which examines the impact of the conflict on oil, gas, fertilizer and chemical markets. Visit the ICIS Coronavirus topic page for analysis of the impact on chemical markets and links to latest news.
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