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BLOG: Supermajors versus Deglobalisation scenarios: The
      impact on petrochemicals and recycling
BLOG: Supermajors versus Deglobalisation scenarios: The impact on petrochemicals and recycling
SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson. HERE ARE TWO scenarios or roads down which the petrochemicals industry will travel over the next ten years, with arrival either at Supermajors or Deglobalisation – Under Supermajors, the industry would be dominated by global oil and gas companies. Under Deglobalisation, markets would become much more regional as local players avoided what could otherwise be a major wave of consolidation. This would be thanks to new trade barriers and other support from governments. In the case of plastics recycling, there are concerns, rightly or wrongly, that under the Supermajors outcome, competitively priced virgin polymer imports could place further strain on recyclers. Today’s post looks in detail at the impact already being felt in Australia because of the collapse of virgin polymer prices. Is there a happy medium where we see a rapid growth in converting more oil into petrochemicals that fits with achieving recycling mandates? A lot will hinge on the judgements of regulators. In the EU, the region’s petrochemicals industry is likely to be hit by substantially higher carbon prices and a more ambitious wave of CO2-reduction targets. The judgement of EU regulators will be critical here as well as pressure for consolidation builds on smaller, less efficient European petrochemical players. This is due to the huge growth in highly competitive new capacities in the Middle East and North America. These new plants are said to have lower decarbonisation costs. Would either Supermajors or Deglobalisation be best for reducing carbon, and as mentioned, improving plastics circularity? Another two other factors that will shape outcomes are what’s best for local employment (it is said that one petrochemical job equals 12 downstream), and supply security in a very uncertain geopolitical world. Many other less extreme outcomes are possible between Supermajors and Deglobalisation. Scenarios will need to be frequently re-examined to assess what has become the more likely outcome, factoring in, for example, the pace of crude-oil-to-chemicals investments in Saudi Arabia and any new trade barriers. Petrochemical companies, buyers, traders, distributors, tank terminal operators, engineering and procurement contractors and financial companies etc. will be affected in different ways. Whatever the outcomes. I am convinced that the following events are inevitable. China will be much more self-sufficient by 2030 in polyethylene (PE), polypropylene (PP),  paraxylene (PX) and  ethylene glycols (EF) than is commonly assumed. I believe China will become pretty much balanced in all these products. Because of changes to China’s economy – and because of the global impact of ageing populations, sustainability and climate change – we have entered a period of significantly lower petrochemicals demand growth. There can be no return to business as usual. 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.
INSIGHT: Chemicals M&A doldrums may last through 2024
INSIGHT: Chemicals M&A doldrums may last through 2024
HOUSTON (ICIS)–High borrowing costs and an industry in recession could continue to dampen chemical industry mergers and acquisitions (M&A) through the first half of 2024 and even through the US election in the second half of the year, consultants at KPMG said in an interview. Data points to a chemical industry in recession, which is suppressing M&A Uncertainty about the outcome of the 2024 elections could offset any jolt that M&A markets could receive from lower borrowing costs Dealmaking continues, although at a slow pace CHEMICALS RECESSION DAMPENS M&AChemical companies are reluctant to make acquisitions because the industry is in a recession, said Gillian Morris, head of advisory for chemicals at KPMG US. “All the data that we have points to a current recession in the chemicals sector.” Chemical volumes have fallen year on year for the past three quarters, she said. Pricing for most chemical groups have fallen year on year for the past two quarters. The most recent earnings season was challenging. The common theme that KPMG is hearing from the chemical industry is that activity has fallen across most segments, the consultancy said in a research report. Mike Harling, head of deal advisory & strategy for energy and chemicals at KPMG US, pointed to the US housing market, an important end market for polyvinyl chloride (PVC) and many other plastics and chemicals. In October, US housing starts reached 1,372 units on a seasonally adjusted annual rate, according to the US Census Bureau. While this was the third consecutive monthly increase, it is down year on year, and it is well below the post-pandemic high of 1,803 reached in April 2022. Other statistics support KPMG’s call. In November, the US manufacturing purchasing managers index (PMI) entered its 13th month of contraction. The chemical industry registered its 15th month of contraction. Throughout the year, executives from companies such as Huntsman said the latest bout of destocking was the worst ever. RPM’s CEO said near the start of 2023 that the US manufacturing sector was in a recession. LOWER BORROWING COSTS OFFSET BY ELECTION UNCERTAINTYIt is growing likely that the Federal Reserve will cease raising interest rates because inflation is showing signs of cooling off. Some economists expect the central bank will begin lowering rates in 2024. Falling interest rates will lower the cost of debt, the other main factor that has depressed the chemical industry M&A market. Any relief from cheaper debt could be offset by uncertainty surrounding the 2024 elections. If US President Joe Biden is replaced, the next administration could introduce new policies and regulations through the federal agencies. Majorities could change in the nation’s legislative chambers. THE SHAPE OF THE RECOVERYIn 2024, KPMG expects US GDP to grow by less than 2% for the first three quarters of the year. The economy will barely grow above 2% in the last quarter of 2024. By 2025, the chemical industry could snap out of its recession, and the recovery in the chemical industry and clarity on government policy should resuscitate M&A, Morris said. When chemical M&A does recover, there could be a lot of businesses up for sale, Morris said. Among private-equity buyers, they are going to be picky about which targets they pursue, she said. They will want the sellers to clearly articulate how their businesses will create value once they change hands. Otherwise, private equity will move on to the next business for sale. For corporations, they may need to bolster their buy-side departments after spending so much time focusing on divestments, Morris said. SNAPSHOT OF CURRENT M&A MARKETAmong the deals that are taking place, many are from private-equity firms selling business in funds that are reaching the end of their lives, Morris said. Some corporations need to delever. These companies are selling businesses so they can bring their debt loads closer in line with their earnings. Other corporations are preparing large businesses for divestment in preparation for the inevitable recovery in the M&A market, Morris said. The following chart shows the volume and value of announced deals. Source: KPMG Insight by Al Greenwood Thumbnail shows money. Image by Shutterstock.
Europe chemicals prices continue monthly gains in October,
      but annual declines more substantial
Europe chemicals prices continue monthly gains in October, but annual declines more substantial
LONDON (ICIS)–European chemicals prices generally rose by more than general producer prices in October, according to the latest data from EU statistical agency Eurostat. This continued the trend from the previous month, as energy prices have regained momentum, with heating demand increasing in line with the colder temperatures in Europe. The following table shows the percentage change in chemical producer prices compared with the previous month: Region/Country October 2023 September 2023 August 2023 EU 0.7 0.9 -0.3 Eurozone 0.8 0.7 -0.2 Germany 0.0 0.3 -0.9 France 0.5 0.7 0.6 Spain 0.5 0.7 0.2 Italy -0.1 -0.2 0.8 The Netherlands 1.5 1.9 0.6 Poland -0.1 2.0 -1.1 Chemicals demand in Europe has been poor for much of 2023, and the usual uptick following a summer break has been significantly more muted than usual. Many producers have slowed or stopped production to cope with high input costs, as they struggle to compete with lower-priced imports from other regions. Overall industrial producer prices rose by 0.2% in October compared with the previous month in the EU and eurozone. In both regions, this was driven by gains in the energy sector, as prices increased by 1.0% in the eurozone and 0.6% in the EU, as prices for other segments remained relatively stable. Excluding the energy sector, industrial pricing fell by 0.2% in both the eurozone and EU. Compared with the previous year, prices for both the chemicals sector and wider industry continued to fall at a more dramatic speed. The rate of decline for key producers largely softened in the three-month period leading to October, but still remained significantly sharper than the monthly movements. The following table shows the percentage change in chemicals producer prices compared with those for the previous year: Region/Country October 2023 September 2023 August 2023 EU -10.5 -11.2 -12.0 Eurozone -10.3 -11.2 -11.9 Germany -9.0 -9.1 -9.0 France -13.8 -14.7 -14.4 Spain -8.6 -9.4 -11.4 Italy -8.5 -8.1 -6.7 The Netherlands -16.0 -17.5 -19.8 Poland -17.6 -18.2 -17.6 Chemicals prices fell more substantially than overall industrial producer prices, which dropped by 9.4% in the eurozone and by 8.7% in the EU year on year. The rate of decline was much softer than in the energy sector, however, where prices plummeted by 25.0% in the eurozone and by 22.7% in the wider EU versus October 2022. Prices of intermediate goods fell by 5.3% in each region, offsetting gains in other segments and resulting in industrial prices excluding energy falling by 0.2% and by 0.3% in the EU and eurozone, respectively. Front page picture shows a chemical factory on the River Rhine, Mannheim, Germany (image credit: G M Therin-Weise/imageBROKER/Shutterstock)
VIDEO: China PE market to remain weak on supply-demand
VIDEO: China PE market to remain weak on supply-demand mismatch
SINGAPORE (ICIS)–ICIS industry analyst Sijia Li discusses recent developments in China’s polyethylene (PE) market, where PE capacity is growing amid weak downstream demand. Supply pressure builds up amid intensive release of new capacities Downstream buyers’ purchases slow on weaker-than-expected demand New capacities still in rapid growth phase in 2024 ICN
PODCAST: China phenol/acetone capacity expands; Shandong
      liquidity up
PODCAST: China phenol/acetone capacity expands; Shandong liquidity up
SINGAPORE (ICIS)–In this podcast, ICIS Senior Industry Analyst Yoyo Liu and Assistant Industry Analysts Jady Ma and Mason Liang talk about supply and demand changes in China’s phenol and acetone industry. They also discuss the rationale behind the introduction of the new price assessment for Shandong. Mismatched supply-demand growth challenges industry Shandong becomes China’s second largest phenol/acetone producing area Competition between regions to intensify
Divestment “priority focus” for Shell Singapore petrochemical
Divestment “priority focus” for Shell Singapore petrochemical assets
SINGAPORE (ICIS)–Divestment will be the way to go for the Singapore petrochemical assets of Anglo-Dutch energy giant Shell, with three Chinese firms reported to be in the shortlist of bidders. Shell’s energy and chemical assets on Bukom and Jurong Island in Singapore, include a 237,000 bbl/day refinery and a cracker with a 1.15m tonne/year ethylene capacity. “Following the strategic review [of the Singapore assets], divestment is our priority focus now,” a Shell spokesperson told ICIS in an e-mailed statement. Timeline and further details of the planned divestment were not disclosed. “Singapore’s position as a trading and marketing hub to serve our customers in the region remains important,” the spokesperson said. Divestment was among the options considered by Shell for its Singapore assets upon announcing a strategic review of all its global assets. In line with the asset review, Shell announced on 1 November the sale of its 77.4% stake in a Pakistani-listed subsidiary to Saudi Arabia’s Wafi Energy for an undisclosed amount. The sale marks the Anglo-Dutch energy giant’s exit from Pakistan after more than 75 years. STRONG INTEREST FROM CHINESE FIRMSSingapore is Shell’s largest petrochemical production and export centre in the Asia Pacific. Based on a 6 December report by newswire agency Reuters quoting unnamed sources, four companies were shortlisted as bidders for Shell’s Singapore assets, three of which are Chinese companies. Chinese state-run offshore oil producer CNOOC, Fujian-based private chemical producer Eversun Holdings and Shandong-based Befar Group made it to the list, along with global commodity trader Vitol, according to the report. Reuters reported that the companies have been asked to submit formal bids by the end-February, with the transaction expected to close by end-2024. Shell neither confirmed nor denied the report, while the three Chinese companies have yet to reply to ICIS’ queries at the time of writing. A few months ago, Chinese isocyanates Wanhua Chemical, along with Chinese petrochemical major Sinopec were reported to be among those interested in Shell’s Singapore assets. Wanhua Chemical president Kou Guangwu told ICIS in late November that the company has no intention to acquire any refinery asset in short term. Focus article by Fanny Zhang and Pearl Bantillo Thumbnail image: A view of Brani terminal port in Singapore, 22 November 2023. (By HOW HWEE YOUNG/EPA-EFE/Shutterstock)
ExxonMobil China cracker project to add 2.5m tonnes/year of
      PE, PP capacity - CFO
ExxonMobil China cracker project to add 2.5m tonnes/year of PE, PP capacity – CFO
NEW YORK (ICIS)–ExxonMobil’s China cracker project will include 2.5m tonnes/year of combined polyethylene (PE) and polypropylene (PP) capacity downstream, its chief financial officer (CFO) said. “When completed, the complex will have three PE and two PP lines for a combined performance product capacity of over 2.5m tonnes/year. This capacity will more efficiently serve China’s domestic demand, which is currently being met with imports,” said Kathy Mikells, CFO of ExxonMobil, at the company’s investor day. The breakdown will be 1.65m tonnes/year of PE and 850,000 tonnes/year of PP with the first full year of operations in 2026. The cracker, being built in Huizhou in Guangdong province, is targeted for start-up in 2025. Construction costs are also expected to be substantially lower than building a similar project on the US Gulf Coast. “By building it in China, we are seeing a construction cost advantage of about 50% versus the US Gulf Coast, and our project team is helping set new Chinese construction records,” said Mikells. “The China petrochemical complex is a significant step in growing our global manufacturing footprint and will be the first 100% foreign-owned petrochemical complex built in China,” she added. The differentiated performance aspect of the downstream PE and PP in the China project should drive an attractive return on investment, said Karen McKee, president of ExxonMobil Product Solutions, in an earlier interview with ICIS. “Whatever we invest in, we’re always looking for an advantaged project with an advantaged return. For our chemical business, we have the advantage of our performance products… that have attributes that customers are somewhat willing to pay more for, typically because they can use less plastic to deliver the same utility,” said McKee. “And so inherently, we have some advantages that we’ve built into this project. The other thing we’ve brought to bear is this great skill we have at ExxonMobil on project building. We are able to be very cost effective,” she added. Focus article by Joseph Chang Thumbnail shows ExxonMobil’s China cracker project under construction
ExxonMobil sees post '27 payoff for customer-focused
      sustainability projects
ExxonMobil sees post ’27 payoff for customer-focused sustainability projects
HOUSTON (ICIS)–ExxonMobil expects that its pipeline of sustainability projects that targets third parties will start making significant contributions to earnings after 2027, the chief financial officer off the US-based major said on Wednesday. In all, ExxonMobil is pursuing more than $20bn in lower emission investments in 2022-2027, of which half is focused internally and half is focused on reducing third-party emissions. “We don’t yet see in 2027 really material earnings come from this third-party spend because it takes a while to actually ramp up the execution,” said Kathy Mikells, senior vice president and chief financial officer. She made her comments during an update about the company’s corporate plan. “Much more of the earnings and cash flow from the investments that we’re making in this plan period actually start to come in the period beyond 2027.” By 2030, these investments should generate 15% returns and cut third-party emission by more than 50m tonnes/year, ExxonMobil said. In prepared remarks, ExxonMobil CEO Darren Woods said the company’s low carbon investments have the most potential for growth, albeit one exposed to uncertainty stemming from government policy and the strength of companies’ commitments to reducing emissions. CARBON CAPTURE AND BLUE HYDROGENFor carbon capture, the US Inflation Reduction Act (IRA) has been the primary driver for the market, Woods said. However, ExxonMobil is pushing for market forces to replace government regulations as the main driver for the industry. The IRA was effective to stimulate and catalyze the market, Woods said. “But long term, we’ve got to move to market forces. That’s what we’re planning on.” With that in mind, ExxonMobil is striving for its carbon capture business to be the lowest cost in the market, Woods said. ExxonMobil now has the largest CO2 pipeline network in the US following its $4.9bn acquisition of Denbury. It now operates a 1,300-mile CO2 pipeline network with access to more than 15 onshore CO2 storage sites. The company has the potential to profitably reduce more than 100m tonnes/year of emissions. ExxonMobil signed three commercial agreements to capture and store up to 5m tonnes/year of carbon dioxide (CO2) from the fertilizer, industrial gas and steel industries. It awarded a contract for its carbon capture and blue hydrogen project in Baytown, Texas. ExxonMobil could make a final investment decision (FID) on the project in 2024. Operations could start in 2027-2028. LITHIUM BRINE EXTRACTIONExxonMobil has started the first phase of a lithium project in the Smackover formation in Arkansas state, with output targeted for 2027. By 2030, the company could produce enough lithium to supply 1m electric vehicles per year by 2030. The company will use conventional oil and gas drilling methods to access lithium-rich saltwater. ExxonMobil will then rely on its experience in refining and extraction to separate the lithium from the saltwater. ExxonMobil’s focus on brine extraction distinguishes it from other companies that are relying on ore mining in the US. Woods said ExxonMobil’s process will place it on the lefthand side of the supply curve, making the company the market’s low-cost producer. RENEWABLE FUELS ExxonMobil’s Canadian affiliate, Imperial Oil, said in January that it would move forward with construction of a 20,000 bbl/day renewable diesel project at its Strathcona refinery near Edmonton, Alberta province. The plant will use a proprietary catalyst to convert blue hydrogen and renewable feedstock into diesel. ExxonMobil has 12 biofuel projects under development with an average expected return that exceeds 20%. These projects involve co-processing, bio-blending and asset reconfiguration. The company is working to supply 40,000 bbl/day of lower-emission fuels by 2025. INTERNAL PROJECTSOut of ExxonMobil’s $20bn in lower emission investments, half are focused on reducing third-party emissions. ExxonMobil expects to reach net-zero emissions in its oil and gas operations in the Permian Basin by 2030. It should reduce methane emission intensity from its assets by 70-80% by 2030. EXXONMOBIL’S LOW-CARBON STRATEGYFor all of its low-carbon businesses, ExxonMobil is not pursuing projects that will require the company to develop new capabilities, Woods said. “Instead, we are looking for opportunities where our existing capabilities, our existing competitive advantages can be leveraged into an advantaged business.” Carbon capture and lithium brine extraction makes the most of the company’s upstream business. Blue hydrogen takes advantage of ExxonMobil’s natural gas and chemical businesses. Once the lithium brine emerges from the ground, ExxonMobil will rely on its refining knowledge to produce a final product that can be used in EV batteries. The large capital commitments and constrained time frame will make it challenging for small start-up companies to meet society’s demands for lower emissions, Woods said. “The world needs companies like ExxonMobil with our size and capabilities to actually make progress.” Focus article by Al Greenwood Thumbnails shows ExxonMobil. Image by Shutterstock.
CDI Economic Summary: US soft landing more likely as
      inflation eases
CDI Economic Summary: US soft landing more likely as inflation eases
NEW YORK (ICIS)–What a difference a year makes! Last year around this time, there was nearly unanimous consensus among economists that the US was barreling into a recession. Today, less than half see such an outcome. ICIS is forecasting a soft landing with flattish GDP in Q1 and Q2 2024 at 0.0% and 0.1% growth, respectively, a considerable slowdown from the upwardly revised 5.2% gain for Q3 2023. A soft landing by no means presages a gangbusters rebound. After estimated GDP growth of 2.3% in 2023, ICIS expects a considerable slowdown to just 1.0% in 2024. Inflation is clearly easing, as is labor market tightness. The latest US Consumer Price Index (CPI) for October was flat from the prior month and up 3.2% from a year ago while the core CPI (excluding food and energy) rose 0.2% month on month and 4.0% from a year ago – the smallest year-on-year gain since September 2021. While still well above the US Federal Reserve’s target of 2%, inflation’s downward trend means the Fed is likely done raising rates. The plunge in 10-year Treasury yields to around 4.2% after hitting a peak of around 5% just over a month ago reflects such optimism, including expectations the Fed will start to cut rates by as early as the spring of 2024. However, a rate cut early in 2024 is unlikely unless there is a dramatic economic downturn. Rate hikes are working and the Fed has been steadfast in its message of higher rates for longer. Meanwhile, the unemployment rate has ticked up to 3.9% as job creation slows. Consumer spending continues to be resilient but the latest retail sales figure in October showed a 0.1% decline from the prior month, a marked reversal from the 0.9% gain in September. Sales were up 2.5% year on year, but adjusting for inflation, volumes appeared soft. Notable year-on-year gains were in health and personal care stores (+9.6%), restaurants and bars (+8.6%) and ecommerce (+7.6%), with big declines in furniture and home furnishings stores (-11.8%) and building materials and garden equipment dealers (-5.6%). Even as consumer confidence measures have remained at lower levels than during the pandemic, largely attributed to high inflation and political and geopolitical uncertainty, consumers continue to spend at a healthy clip. Services is doing the heavy lifting with manufacturing lagging badly. The latest ISM US Manufacturing Purchasing Managers’ Index (PMI) reading in November was flat at 46.7, marking the 13th consecutive month of contraction (under 50). The housing market continues to struggle with high mortgage rates still a major headwind. Housing starts rose 1.9% in October from the prior month to an annualized 1.37m pace but were down 4.2% from a year ago. ICIS forecasts housing starts to fall from 1.39m in 2023 to 1.37m in 2024 – well below the recent peak of 1.60m in 2021. Automotive remains a bright spot with October light vehicle sales easing just 1.2% from September to a 15.5m unit pace – less-than-expected given the UAW strike against the Big 3 US automakers which has now been largely resolved. Sales were up 5.6% year on year and 12.6% year to date. ICIS forecasts light vehicle sales easing from 15.4m units in 2023 to 15.2m units in 2024. The ICIS US Leading Business Barometer (LBB), a key forward-looking indicator for the US business cycle, was down 0.1% in October versus September, extending to 19 consecutive months of decline. The downward trend over the past year is consistent with recessionary conditions but the recent stabilization in the pace of decline is encouraging. Additional contribution by ICIS senior economist for global chemicals, Kevin Swift
PODCAST: How data can help chemicals towards a low carbon
PODCAST: How data can help chemicals towards a low carbon future
BARCELONA (ICIS)–Chemical companies can harness new sources of data which will help them make strategic decisions on new business models for a less carbon-intensive future. Chemical companies need analysis of short and long-term market drivers Data and analytics can forecast long-term supply & demand trends Decision-making increasingly complex, marrying net zero with the need to remain profitable New sources of data can help companies measure Scope 1, 2 and 3 emissions There are no agreed standards for Life Cycle Assessments Emerging green premiums for low carbon products Huge volatility in prices, margins for recyclers Recycled polymer markets behave differently to virgin In this podcast, Will Beacham interviews ICIS senior editor for recycling, Mark Victory; ICIS head of commercial strategy – sustainability, Soline Guérineau; and ICIS head of commercial strategy – chemicals, Redwan Hoque.
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