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Germany’s chemical industry faces weak domestic demand and persistent structural issues – VCI
LONDON (ICIS)–Although Germany’s chemical-pharmaceutical sales and production are forecast to increase this year, after sharp declines in 2023, domestic demand remains weak and the industry’s structural problems persist, according to Henrik Meincke, chief economist of chemical producers’ trade group VCI. Weak domestic industrial demand Pre-crisis chemical production levels not in sight Low capacity utilization reflects structural problems VCI’s 2024 forecast: Sales: +1.5% Export sales: +3.5% Domestic sales: -1.5% Chemical producer prices: -2.0% Production: +3.5% Production, excluding pharmaceuticals: +5.0% Employment: flat DOMESTIC DEMAND In the 2024 first quarter, domestic chemical-pharmaceutical sales fell 9.3% year on year, Meincke told participants in a webinar presentation that accompanied VCI’s recent Q1 report. Excluding pharmaceuticals, the decline was even worse, at 11.3%, as most domestic customer industries curtailed production: Building and construction: -1.4% Plastics products sector: -3.6% Metal production: -2.3% Metal products sector: -6.4% Autos: -8.2% Food: +1.3% Glass and ceramics: -11.3% Paper: -0.8% Printing products: -7.2% Furniture: -10.9% Machinery: -7.1% Electrical equipment: -14.6% CHEMICAL PRODUCTION Despite a 5.4% year-on-year increase in 2024 first-quarter chemicals production (excluding pharma), production in the chemicals industry’s major segments remains below its levels from 2018, Meincke noted. Production declines, from H2 2018 to H2 2023, by segment: Total chemicals: -19.8% Inorganic chemicals: -21.9% Petrochemicals: -24.1% Polymers: – 22.5% Fine and specialty chemicals: -16.8% Soap and detergents: -17.9% In fact, Germany’s chemical production has fallen back to its level from 1995 and the gap between the country’s overall production and chemical production has widened, Meincke said. Production trends (red line: overall goods producing sector; blue line: chemicals; five-month moving average; 2021 = 100): (source: VCI) STRUCTURAL PROBLEMS The main reasons for the decline in Germany’s chemicals production include high costs for labor, raw materials and energy, bureaucracy, a weak economy and a loss in international price competitiveness, Meincke said. Although electricity and natural gas prices have somewhat normalized, they were still much higher than in 2019 and much higher than in countries such as China, the US or France – making it hard for Germany’s energy-intensive industry to compete internationally, he said. The low capacity rates in the chemical industry reflect its “extremely difficult” situation, Meincke said. Chemical-pharmaceutical capacity utilization in the 2024 first quarter was at 78.1% – a 10th consecutive quarter in which the industry is running “significantly” below normal rates of 82-85%, he said, adding that there were no signs of a significant improvement. As the under-utilization continues quarter after quarter, companies will react by not restarting idled capacities but rather shift investments abroad, the economist said. The crisis was so severe that it has triggered “structural effects”, he said. Eric Heymann, senior economist at Deutsche Bank Research, who also presented at the webinar, spoke of an “investment leakage”, meaning that German companies will avoid making big energy-intensive investments in the country but rather invest abroad. Heymann said one needed to distinguish between Germany’s problems as a location for industrial production and German industrial companies, which may invest in Germany or elsewhere. Although domestic sales are forecast to fall this year, increased export sales should more than offset this and VCI therefore forecasts a 1.5% increase in total 2024 sales. Production is expected to rise 3.5% in 2024. Production excluding pharmaceuticals should rise 5.0%, which would follow a 10.4% decline in 2023. However, despite the expected year-on-year increase, production will remain far from pre-crisis levels, the industry’s structural problems will persist, and companies are not expecting a recovery any time soon, Meincke said. Focus article by Stefan Baumgarten Thumbnail photo of Steam cracker II at BASF’s Ludwigshafen site; source: BASF
UK April inflation lowest in almost three years as IMF upgrades growth forecast
LONDON (ICIS)–UK inflation fell to its lowest level in almost three years in April, driven down mainly by lower energy costs, according to official data on Wednesday. The Consumer Prices Index (CPI) rose by 2.3% in the 12 months to April, down from 3.2% in the 12 months to March. Lower gas and electricity prices resulted from the UK energy regulator Ofgem lowering its price cap in April, the Office for National Statistics said. “Prices of electricity, gas and other fuels fell by 27.1% in the year to April 2024, the largest fall on record, with figures available back to 1989.” On Tuesday, the International Monetary Fund (IMF) upgraded its growth forecast for the UK and said the economy was “approaching a soft landing”. Inflation closer to the Bank of England’s target of 2% means that interest rate cuts are more likely, with the IMF recommending cuts of 50-75 basis points this year. UK CPI inflation hit a recent peak of 11.1% in October 2022, the ONS said in its statement.
Freight rates on China exports soar amid Red Sea crisis
SINGAPORE (ICIS)–Freight rates for China’s exports, including petrochemicals, have been spiking in recent weeks and are expected to remain firm in the next three to six months on the back of improving overseas demand and amid continued logistics disruptions in the Middle East. Geopolitical tensions translate to higher shipping cost, longer delivery time Container shortages intensifying in China Freight rates to remain firm on strong western demand Most ocean carriers have halted transits in the Red Sea, which is the fastest shipping route between Europe and Asia, fearing missile attacks by Yemen’s Houthi rebels. They have opted to take the longer route via the Cape of Good Hope, resulting in much longer time and costs for moving cargoes to their destinations. The Red Sea crisis is showing no signs of de-escalation, with the latest casualty being the Panama-flagged oil tanker M/T Wind bound for China, which was struck by a Houthi-launched ballistic missile on 18 May. Logistics and supply chain disruptions are expected to continue. Dutch shipping giant Maersk had said on 6 May that its vessels have been forced to lengthen their journey further because of the expanded risk zone and attacks reaching further offshore in the Rea Sea. “The knock-on effects of the situation have included bottlenecks and vessel bunching, as well as delays and equipment and capacity shortages,” the company had said, estimating an industrywide capacity loss of 15-20% on the Far East-to-North Europe and Mediterranean market during the second quarter. CONTAINERS/VESSEL SPACE IN SEVERE SHORTAGE As carriers now need longer time to come back from destinations, the resulting severe shortage of containers and vessel space was triggering sharp spikes in freight rates. From Shanghai to the US west coast and the US east coast, freight rates on 17 May jumped to $5,025/forty-foot equivalent unit (FEU), and $6,026/FEU, respectively, up by 14.4% and 8.3% week on week, according to the Shanghai Shipping Exchange. To South America from China’s financial capital, the shipping cost increased at a sharper rate of 22.4%, while to Europe, freight rates rose by 6.3%, the data showed. A shipping broker said that China-to-Europe freights have been soaring by $500-$800/FEU each week since late April, while a polypropylene (PP) trader noted that the rates to West Africa more than tripled to $8,000/FEU, more than a fourfold increase from $1,500-$2,000/FEU rates in early April. “We now need to wait 10-15 days for booking containers. We face severe stockpiling and warehouses are flooded with cargoes waiting for shipment,” said a marketing manager of a Shenzhen-based logistics company. A plastic bag factory in east China is currently stuck with high inventories and risk suspending production, a source from the company said For vinyl acetate producers, a shortage of shipping tanks prevents them from exporting more cargoes, providing them with the less-efficient means of bulk shipments with other products as the only alternative. ROBUST WESTERN DEMAND SUPPORTS FIRM RATES The recent spike in freight rates came as a surprise to players in the petrochemical industry as the May-June period is normally a lull season for Chinese exports. Besides the Red Sea crisis, strong demand coming from the west underlies the recent surge in freight rates. “July-September is the peak season for China-to-West shipping. With [the] destocking last year, Europe and US markets demand are expected to rise substantially before the Christmas [season in December],” said Wang Guowen, director of Shenzhen Logistics and Supply Chain Management Research. “Plus, Europe and UK central banks are expected to cut interest rates, which will further stimulate consumptions there,” he added, noting that demand from both Europe and the US will remain strong rest of the year. This will continue to buoy up shipping rates, which are projected to hover at high rates over the next three to six months, industry sources said. On 16 May, Maersk announced a hike in peak season surcharge (PSS) for major east-to-west shipping lanes, including the China-to-Dar es Salaam, Tanzania route, PPS for which increased to $1,500/FEU since 20 May. Meanwhile, French shipping and logistics major CMA CGM plan to hike its Asia-to-northern Europe freights to $6,000/FEU, effective 1 June. Current container production in China could not catch up with strong demand. New China-manufactured containers to be delivered before late June have been sold out, a source at domestic logistics company said. Wang of Shenzhen Logistics and Supply Chain Management Research, however, noted that the present container shortage is not about undersupply but more about the sharp slowdown in turnover amid the global logistics disruptions. Tight shipping conditions are expected to prevail in the third quarter as demand is expected to peak, with a gradual easing of freight rates likely in the fourth quarter, he said. Focus article by Fanny Zhang Additional reporting by Joanne Wang and Lucy Shuai Thumbnail image: At the container terminal of Yantian Port in Shenzhen City, Guangdong Province in south China, 16 May 2024 (Shutterstock)

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Canadian Nutrien temporarily suspends Saskatchewan mine following fatality
HOUSTON (ICIS)–Canadian fertilizer major Nutrien temporarily suspended operations at its Rocanville, Saskatchewan, mine after a fatality at the railcar loading facility this past weekend. The producer is investigating the 19 May incident and cooperating with the review being undertaken by Saskatchewan Ministry of Labour Relations and Workplace Safety. It expects to recommence the potash mine facility, located approximately 250 kilometres east of Regina, on 22 May. “Following the tragic fatality of one of our colleagues at our Rocanville mine on Sunday, 19 May, authorities have conducted investigations at the site. Nutrien is carrying out its own investigations. We continue to provide support to all those affected by this tragic event,” said Nutrien spokesperson. The United Steelworkers union (USW) did announce that it was one of their members who was involved but the name has not been released. “Our community is in mourning over this tragic incident at our mine site and our thoughts go out to the family, friends and our union family who are deeply impacted,” said Derek Palmer, USW Local 7916 president.
PPG to build new US paint plant, invest in existing two sites
HOUSTON (ICIS)–PPG plans to spend $300 million to build a new plant in the US and to make investments at existing sites in North America, the paints and coatings producer said on Tuesday. “As we continue to see a resurgence of manufacturing in the US, PPG will leverage this new facility and our other site investments to maximize quality, improve operational efficiency and reduce product complexity within our manufacturing footprint,” according to a statement by Tim Knavish, PPG CEO. The projects will start later in 2024 and span a four-year period, PPG said. The new plant will be in Loudon county, Tennessee state, the company said. Construction should start in August 2024 and finish in 2026. When fully operational, the plant can produce more than 11 million gal/year (42 million liters/year.) The plant will initially make paints and coatings for automakers and auto parts suppliers, the company said. Eventually, it could supply other industrial segments, including transportation, heavy duty equipment, building and construction and consumer products. The plant in Loudon county will be the first plant that PPG has built in the US in 15 years. PPG will also expand and upgrade existing sites in Cleveland, Ohio, US, and San Juan del Rio, Queretaro state, Mexico. The investments will cover new equipment and processes that will make the plants more efficient, PPG said. They will also allow the plants to meet growing demand for sustainable products, such as waterborne coatings. The investments in the two existing sites and the new plant do not represent a change in the level of PPG’s overall capital investment spending, the company said. Thumbnail shows PPG’s headquarters.
Brazil’s Braskem restart at Triunfo to kick off petchem hub normalization
SAO PAULO (ICIS)–Braskem has restarted operations at its Triunfo facility in the flood-hit state of Rio Grande do Sul, which will allow other players in the petrochemicals hub to start up their plants as many depend on input from the Brazilian polymers major to operate. On Monday (20 May), Braskem said it would restart its units at Triunfo – where the producer has around one-third of its Brazilian production capacity – with the expected process to take around two weeks. A spokesperson for Innova told ICIS that the styrenics producer’s plants at Triunfo were ready to begin operations as soon as Braskem, which supplies Innova with key feedstock benzene, had started up. The spokesperson did not respond to questions about the financial hit Innova would suffer from the Triunfo outage, but said it had been able to its supply customers with material from its other units in Brazil. “For polystyrene [PS], for instance, our Manaus production unit was able to absorb the tonnage previously allocated to Triunfo, so that we could avoid any negative impact on our customers,” said the spokesperson. Meanwhile, a source at Innova told ICIS late on Monday that it aims to restart its PS, styrene, and ethyl benzene (EB) plants on 22-23 May. However, due to low production volumes, it would be prioritizing customers in Brazil rather than exporting any material. The restart process, however, may not be without hiccups. A source in Brazil’s petrochemicals industry said on Tuesday that highway BR-386, a 525-kilometer road linking Porto Alegre with the interior of the state as well as the south of Santa Catarina state, remains partially blocked. “Drainage is still a problem. The blockage of the BR-386 and the lack of trucks are making distribution very difficult,” said the source. “Yesterday [Monday], they managed to dispatch 15 trucks out of Triunfo, while the daily average on normal days stands at around 400 trucks.” THE BEGINNING OF THE ENDIn what has become one of Brazil’s worst flooding disasters, the state of Rio Grande do Sul came to a standstill on 29 April with hundreds of roads blocked, widespread landslides and a dam collapse. As of Monday, the floods had caused 157 deaths while another 88 people are unaccounted for, according to Rio Grande do Sul’s emergency services. Over 76,000 people are still taking refuge in shelters, while nearly 600,000 have been displaced from their homes. In the 12-million people state, nearly 2.5 million have been affected by the floods which have badly hurt its economy. Although  petrochemicals plants at Triunfo have not been damaged by the flooding, access to them became almost impossible at the peak of the crisis. This forced companies in the hub to declare force majeure, including Braskem, Innova, and styrene butadiene rubber (SBR) producer Arlanxeo. As of Tuesday, none of the force majeures had officially been lifted. Indorama’s subsidiary in Brazil said it was idling its plants, although it has yet to declare force majeure. A spokesperson for Indorama told ICIS that the situation at its plants remains unchanged from last week. Arlanxeo had not responded to a request for comment at the time of writing. Although petrochemical facilities at Triunfo are restarting, other industrial players are still reeling from the floods with widespread stoppages. Earlier this week, automotive global majors Volkswagen (VW) and Stellantis said they were stopping production at some Brazilian and Argentinian plants due to a lack of input from automotive parts producers in Rio Grande do Sul. Meanwhile, fertilizers players have said to ICIS that demand could be hit, potentially resulting in lower prices as Rio Grande do Sul is also a major agricultural state in Brazil. Analysts at S&P Global said that while petrochemicals producers in the state may be spared from a large financial hit, fertilizers players are likely to be more negatively affected. Front page picture: Braskem’s facilities at the Triunfo petrochemicals hub in Rio Grande do Sul Source: Braskem Additional reporting by Bruno Menini
VIDEO: Global oil outlook. Five factors to watch in Week 21
LONDON (ICIS)–Oil benchmarks could be subject to bearish sentiment this week amid rising demand concerns. Minutes from the latest US Federal Reserve meeting and US economic data due this week will provide further clarity on future monetary policy. ICIS experts look ahead to the likely factors that will drive oil prices in Week 21.
INSIGHT: China’s industrial activity gathers pace but lopsided April data clouds outlook
SINGAPORE (ICIS)–China’s industrial output grew by 6.7% year on year in April, signalling a further strengthening of its manufacturing sector, but weaker retail sales and bleak property data suggest that its overall growth momentum remains weak. The April industrial output reading accelerated from the 4.5% expansion in the previous month, data from the National Bureau of Statistics (NBS) showed. The strong April data brought year-to-date growth to 6.3% year on year, and industrial activity looks like it will be one of the main growth drivers in the second quarter of the year. The transition toward high-tech manufacturing continues to be one of the major driving forces for China’s industrial output. High-tech manufacturing grew 11.3% year on year in April, and 8.4% over the first four months of the year, while auto production also rebounded strongly, up to 16.3% in April up from 9.4% in March. The upbeat manufacturing outlook follows earlier April data which showed the country’s exports and imports both returning to growth in April after contracting in the previous month, while the official April manufacturing purchasing manager’s index (PMI) remained in expansionary territory at 50.4 in April from 50.8 in March. Despite a partial retreat after peaking during the pandemic, China’s share of global goods exports has recently rebounded, reaching 14.7% in the second half of 2023, up from 14% in the first half and exceeding pre-pandemic levels of 13.3% in 2019, according to Christine Peltier, an economist at French bank BNP Paribas. In addition, China’s recent market share gains have been recorded across a wide range of products, including low value-added consumer goods such as furniture and toys, organic chemicals and plastics, vehicles, electrical and electronic machinery and equipment and parts thereof, she noted. They have been particularly impressive for electric vehicles, with export volumes multiplied by 7 between 2019 and 2023, solar panels, exports multiplied by 5 between 2018 and 2023, and lithium batteries. These three products accounted for around 4% of China’s total exports in 2023, about three times their 2019 share. The flood of Chinese products has given rise to growing concerns among industrial entrepreneurs and governments in the US, the EU and now emerging countries, and is likely to lead to new trade confrontations in the coming months, Peltier added. RISKS STILL OUTWEIGHING POSITIVES”While we acknowledge the resilience in some parts of the [China] economy amid this economic rebalancing, we believe these are insufficient to outweigh the drags from the property woes and geopolitical headwinds,” Nomura Global Markets Research said in its Global Economic Outlook Monthly report. “Export growth is holding up steadily for now, thanks to cheap prices and resilient external demand, but could face further headwinds as countries launch anti-dumping investigations,” it said. 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. US President Joe Biden is increasing tariffs on $18 billion worth of imports from China, including electric vehicles (EVs), semiconductors, batteries, and other goods. The White House stated that this decision is a response to unfair trade practices and aims to protect US jobs. In response, China’s Ministry of Commerce announced that it “will take resolute measures to safeguard its own rights and interests.” PRIVATE CONSUMPTION REMAINS WEAK April’s data revealed that retail sales growth fell to a new post-pandemic low, further indicating a shift away from consumption as a primary growth driver for 2024. Retail sales growth fell to 2.3% year on year in April, slowing from the 3.1% expansion in March, bringing the year-to-date growth rate to 4.1%. The largest drag to retail sales in April was tied to automotive sales, which declined by 5.6% year on year, and the data may add fuel to the fire for the critics of China’s overcapacity in this sector. Another major category, household appliances, also slowed to 4.5% year on year. As trade-in policies take effect later in the year, these categories could see some recovery, Dutch banking and financial information services firm ING said in a note. “Consumption growth is likely to remain moderate through most of 2024, as consumer confidence remains downbeat amid tepid wage growth and the lingering negative wealth effects from the past several years of declining asset prices,” it said. “A possible bottoming out of prices would also take some time before translating to stronger consumer activity.” HOUSING SECTOR CONTINUES TO SLUMPThe persistent weakness in China’s property sector, accounting for roughly a quarter of its economy, continues to weigh on overall economic growth. April data showed that in the 70-city sample from the NBS, property prices continued to slide. New home prices fell by 0.58% month on month in April, and secondary market prices fell by 0.94%, which were the steepest sequential declines since the start of the housing slump in 2021. At the city level, 69 out of 70 cities continued to see declining prices in the secondary home market in April, unchanged from March. Although new home prices rose in 6 out of 70 cities, including Shanghai and Tianjin, the new home market’s performance was weaker in April compared to March when 11 out of 70 cities saw price increases. Separately, property investment fell by 9.8% year on year in January-April, extending the 9.5% contraction in January-March, NBS data showed on Friday. China is now exploring a bold plan to revive its struggling property market by having local governments purchase millions of unsold homes. Chinese authorities on 17 May pledged new support to enable state-owned enterprises to purchase unsold apartments, aiming to provide developers with more funding to complete pre-sold properties. The People’s Bank of China also on 17 May eliminated the minimum mortgage interest rate and reduced the minimum down payment ratio for both first-time and second-time home buyers. “A recent flurry of supportive policy announcements including removing purchase restrictions, housing “trade-in” policies, and plans to directly purchase housing units for social housing programmes, has boosted market optimism that we will see a bottoming out of housing prices sometime this year,” ING said. As these policies roll out in the coming months and help alleviate downward pressure on property prices, data indicates that homebuyers may still remain cautious and on the sidelines until a trough is established, it said. “While it is arguably one of the most important signs of a stabilization of sentiment in China, it is worth noting that a potential bottoming out of housing prices would only be the first step; elevated housing inventories will likely keep real estate investment suppressed for some time yet, and the property sector will remain a major drag on the economy this year,” ING added. Recent announcements from local governments, including the Dali government of Yunnan Province, have expressed intentions to facilitate the acquisition of existing homes for conversion into public housing, Singapore’s OCBC Bank said in a note. This move is seen as a way to not only address the housing surplus but also potentially stimulate economic growth by increasing public spending and boosting the construction sector. Moreover, China’s Finance Ministry announced on 13 May a plan to issue 1 trillion yuan of ultra-long special bonds over a period of six months, ending in November. This moderate issuance pace marks only the fourth time in 26 years that China has employed this type of debt for fiscal stimulus, allowing for targeted spending. China has set an ambitious economic growth target of around 5% this year, a level which analysts are cautiously optimistic about. The world’s second-largest economy expanded by 5.3% in the first quarter of this year. Thumbnail photo: A man rides a scooter next to a construction site of residential buildings in China (Source: ANDRES MARTINEZ CASARES/EPA-EFE/Shutterstock) Insight by Nurluqman Suratman
US corn crop now at 70% planted with soybeans at 52%
HOUSTON (ICIS)–US farmers continue to overcome their recent weather challenges and have now reached 70% of the corn crop planted with soybeans at 52%, according to the latest US Department of Agriculture (USDA) weekly crop progress report. Reflecting some of the wet field conditions, the current pace of the corn sowings is trailing both the 76% achieved in 2023 and the five-year average of 71%. North Carolina remains ahead of the other key corn states with 98% of its crop planted, followed by Texas at 85%. There is now 40% of the corn crop which has emerged. It is lagging the 46% achieved in 2023, but the current rate is slightly ahead of the five-year average of 39%. Soybean plantings are 52% completed, with this pace behind the 61% level reached last year but it is above the five-year average of 49%. Mississippi remains the leading state for soybean plantings at 86% completed, with Arkansas now at 82%. There is 26% of the crop which has emerged; this is less than the 31% seen in 2023, yet it is ahead of the five-year average of 21%. For the other key crops, the USDA said cotton plantings have reached 44% completed, with sorghum at 32% and spring wheat now at 79%.
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