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Headwinds persist for auto industry as US July sales fall
      8.9% year on year
Headwinds persist for auto industry as US July sales fall 8.9% year on year
HOUSTON (ICIS)–The auto industry continues to face headwinds from limited inventory on dealer lots and recent moves by the US Federal Reserve to raise interest rates in an effort to slow inflation will increase borrowing costs, although the National Automobile Dealers Association (NADA) does not anticipate any impact on consumer demand. US July sales of new light vehicles rose by 2.5% from June on a seasonally adjusted basis but are down by 8.9% from the same month a year ago, when the global microchip shortage first began to impact sales. Source: NADA NADA chief economist Patrick Manzi said he anticipates sales reaching 14.2m units by the end of the year, largely because of the steady demand and the fact that demand for used autos remains high, so consumers can offset some of the increase. July sales were at 13.4m units at a seasonally adjusted annual rate (SAAR). CHIP SHORTAGE The shortage of semiconductors – which control the engine, antilock brakes, power steering, fuel monitoring system and heating and air conditioning in modern vehicles – has lingered much longer than automakers and industry analysts said it would. The shortage has weighed and continues to weigh on dealer inventories, Manzi said. At the start of July, new-vehicle inventory on the ground and in transit was at 1.2m units and Manzi said he expects that number to remain consistent through the end of the month. The US government has taken steps to help alleviate the shortage, but actions such as the US Senate’s passage of the Chips and Science Act of 2022 are geared more toward the future and are unlikely to offer immediate help. The bill has passed through the US House of Representatives and President Joe Biden will sign the bill into law on Tuesday. The bill includes $52bn for domestic chip production and includes investment tax credits for new chip manufacturing plants. ELECTRIC VEHICLES The data also showed that sales of battery electric vehicles (BEVs) reached 5% of all new light-vehicle sales through July 2022, which is the highest market share for BEVs to date, according to NADA. Manzi said 34% of all BEV sales this year have been through franchised dealerships, which NADA anticipates will continue to grow each year as new models are introduced. Over the weekend, the US Senate passed the Inflation Reduction Act, which includes some provisions aimed at accelerating the adoption of electric vehicles (EVs) via rebates and tax credits. The automotive industry is a major consumer of petrochemicals, which contributes more than a third of the raw material costs of an average vehicle. Polymers used in automobiles include polypropylene (PP), polyurethanes, nylon, acrylonitrile-butadiene-styrene (ABS), styrene acrylonitrile (SAN), polycarbonate (PC) and styrene butadiene rubber (SBR). Focus article by Adam Yanelli Visit the ICIS automotive topic page. Visit the ICIS US Gulf Coast polar storm topic page. Visit the ICIS coronavirus impact on chemicals topic page.
LONDON (ICIS)–Spain is on track to hit the EU’s 80% gas storage fullness requirement well before 1 November, with potential to remain a net gas exporter to France for the rest of 2022. This is also likely to allow Spain to carry out LNG reloads during the same period, depending on the level of the country’s LNG imports. SPANISH STORAGE LEVELS In Spain, the available underground storage capacity fell to 3.62 billion cubic metres (bcm) for the storage year beginning 1 April 2022, down by 10 million cubic metres (mcm) year on year. Despite slightly lower available capacity, the volume needed to maintain obligatory strategic minimum gas stocks (20 days of firm sales) has increased by 110mcm year on year to 2.12bcm. Spanish gas grid operator Enagas announced on 27 July that the country’s stores were 77% full, already above the 71% storage fullness requirement set by the European Commission for 1 August this year. Spain’s storage sites are currently around 79% full, eight percentage points higher year on year, according to data from Enagas. Current storage levels make Spain one of the most comfortable European countries in that context, allowing it to export pipeline gas and LNG to Europe when required, a market participant told ICIS. In July, Enagas CEO Arturo Gonzalo ruled out a gas supply crisis in Spain this winter. GAS EXPORTS TO FRANCE In July, net Spanish gas exports to France averaged 4.3mcm/day, in contrast with 4.0mcm/day of net imports from France in July 2021. Nevertheless, ICIS has assessed the Spanish PVB Day-ahead contract at an average of €4.382/MWh above its French PEG counterpart between 29 July – 5 August. This has led to a reversal in gas flows between the countries so far in August, with Spain receiving an average of 10.7mcm/day of gas from France between 1-7 August – 10.2mcm/day more than the same period last year. Although currently a net importer from France, Spain’s position could easily revert to an exporting with adjustments to the PVB-PEG Day-ahead spread. LNG CARGO RELOADS FROM SPAIN Spain has carried out 15 LNG cargo reloads so far in 2022, seven more than the same period in 2021, according to ICIS LNG Edge. A total of six LNG cargo reloads were carried out in Spain during June and July 2022 alone, five of which were delivered to Italy. Spain’s LNG reload capabilities are likely to be strengthened when the country’s seventh and currently mothballed El Musel LNG terminal becomes operational in early 2023 . The terminal, based in Gijon, northern Spain, is not connected to Spain’s central gas system and would instead be used to receive cargoes and store the LNG for re-export elsewhere, to help increase the region’s storage capacity. The level of Spain’s LNG cargo reloads will depend on the number of laden vessels it receives over coming months. Up to six LNG cargoes are expected to be delivered to Spain between 10-17 August, compared with four deliveries during the same time in 2021, ICIS LNG Edge showed. PORTUGUESE STORAGE LEVELS Spain’s Iberian neighbour, Portugal, meanwhile, has completely filled its underground gas stores. This has been possible due to its small storage capacity of just 0.37bcm. Although Portugal’s gas storage is completely full, the country’s small storage capacity means it may still be vulnerable to supply shortages during the winter period.
Americas top stories: weekly summary
Americas top stories: weekly summary
HOUSTON (ICIS)–Here are the top stories from ICIS News from the week ended 5 August. Aramco to expand lube business with $2.65bn US Valvoline deal Aramco has agreed on Monday to buy Valvoline’s Global Products (VGP) business for $2.65bn, an acquisition that will significantly expand its finished-lubricants business. US July ethylene contract prices fall on lower spot prices, operating costs US July ethylene contracts settled at a decrease amid lower spot prices and operating costs. INSIGHT: EV adoption to drive lubricant additives demand scenarios Scenarios for lubricant additives in North American automotive engine oils will rely heavily on the rate of electric vehicle (EV) adoption. Even with an accelerated EV shift, lubricant additives will still be needed in 2050. INSIGHT: US Inflation Reduction Act to boost chems going to sustainability The Inflation Reduction Act should increase demand for several chemicals used to make insulation, sealants, solar panels and other products used to produce renewable power and increase energy efficiency – while increasing taxes and making it more expensive to produce oil and gas.
Global IPEX slides 7.7% in July on lower chemical prices in
      NE Asia, NW Europe
Global IPEX slides 7.7% in July on lower chemical prices in NE Asia, NW Europe
LONDON (ICIS)–The ICIS Petrochemical Index (IPEX) slid 7.7% month on month in July as petrochemical and plastic prices fell in northeast Asia and northwest Europe. The IPEX in northeast Asia posted the largest fall, slumping 8.4% in the month after a drop in crude values and poor demand for chemicals. Butadiene (BD), paraxylene (PX) and benzene led the slide. Prices in northwest Europe were down 2.8%, with polypropylene (PP), polyethylene (PE) and methanol all lower. A 25% jump in benzene prices failed to offset declines in most of the markets tracked in Europe. The US Gulf was the only region to see chemical and plastic prices increase in July, and was this mainly down to a 42.4% surge in benzene prices. Polystyrene (PS) values also soared, but ethylene, toluene and propylene prices fell. The Global IPEX index is up 6.9% year on year. Thumbnail image: Shutterstock The ICIS petrochemical index tracks the movement of prices for the 12 major petrochemicals and polymers: ethylene, propylene, butadiene, benzene, toluene, paraxylene (PX), polyethylene (PE), polypropylene (PP), styrene, polystyrene (PS), methanol and polyvinyl chloride (PVC) with the regional indexes weighted by capacity. The IPEX values are related to a January 2000 base of 100. IPEX values are subject to change retrospectively as monthly contract prices are settled.
Europe top stories: weekly summary
Europe top stories: weekly summary
LONDON (ICIS)–Here are some of the top stories from ICIS Europe for the week ended 5 August. German chemicals fear additional costs as Berlin imposes ‘gas levy’ Germany’s government has decided to impose a temporary gas levy (“Gasumlage”) on natural gas consumption to cope with costs caused by the reductions in Russian gas supplies – but chemical producers warn of additional burdens that will hurt their international competitiveness. UK to enter recession in Q4 with inflation at 13% – central bank The UK is expected to enter recession in the fourth quarter (Q4) of 2022 while inflation will stand at 13% by year-end, the Bank of England (BoE) said on Thursday. Summary of mid-year Europe OUTLOOK stories Here are the second half (H2) 2022 European OUTLOOK stories which ran on ICIS news throughout July and the first week of August. Europe PE, PP prices to fall further on lower demand, US and MidEast imports – Borealis CEO European polyethylene (PE) and polypropylene (PP) prices are set to fall further as domestic demand softens and more imports from the US and the Middle East are heading to Europe, the CEO of Austrian polyolefins producer Borealis said. Germany’s Covestro Q2 net income falls sharply amid higher feedstock, energy prices Covestro’s second-quarter net income fell by 55.7% after earnings were hit by higher raw material and energy prices, the German chemicals major said on Tuesday. Europe continues to sanction Russian fertilizers despite local production issues In Europe, imports of Russian fertilizers remain sanctioned even after Russia and Ukraine signed separate agreements with Turkey and the United Nations, clearing the way to export millions of tonnes of Ukrainian grain and Russian grain and fertilizer products.
BLOG: Policymakers should be preparing for the next crisis
BLOG: Policymakers should be preparing for the next crisis
LONDON (ICIS)–Click here to see the latest blog post on Chemicals & The Economy by Paul Hodges, which looks at how “demographics are destiny” while policymakers have refused to accept that ageing populations meant growth was inevitably slowing in all the major regions. “Instead, they decided from 2003 onwards that they could effectively ‘print babies’ via stimulus policies,” says the author. 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. Paul Hodges is the chairman of consultants New Normal Consulting.
BLOG: China goes global in PP perhaps quicker than had been
      expected, badly disrupting the global industry
BLOG: China goes global in PP perhaps quicker than had been expected, badly disrupting the global industry
SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson. Again, please don’t say we didn’t warn you. The main chart in today’s post suggests that under Downside 2, China would swing into a cumulative polypropylene (PP) net export position of 22m tonnes in 2022-2030 from being by far the world’s biggest net importer. We see this as the most likely outcome. This has been on the cards since 2014 when China said it would push much harder towards petrochemicals self-sufficiency in general. What seems to have added to the pace of this hugely disruptive turnaround are the zero-COVID policies and the Common Prosperity economic reforms. Despite this year’s local operating rate in line to fall to its lowest level since 2000, 2022 exports could reach 1.7m tonnes, up from 1.4m tonnes in 2021 and just 424,746 tonnes in 2020. There is a scenario where an increasingly confident Chinese industry plays a significant global role in exports of commodity and perhaps even high-value grades of PP. In such an event, the other major exporters in the Middle East and Asia would need to implement very different strategies from today. Such are the geopolitical and sustainability uncertainties that many other scenarios are possible. But we see it as essential that the global PP industry gameplans the implications of China becoming a major, perhaps even dominant, global PP player. 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.
Asia top stories - weekly summary
Asia top stories – weekly summary
SINGAPORE (ICIS)–Here are the top stories from ICIS News Asia and the Middle East for the week ended 5 August 2022. Japan’s Mitsui Chem fiscal Q1 profit falls 34% on weak materials earnings Mitsui Chemicals’ first quarter-to-June 2022 net profit declined by 34.3% year on year, weighed down by lower bisphenol-A (BPA) prices and a deceleration in automotive production, the Japanese producer said on Friday. South Asian PS offers slump on weak SM The spot polystyrene (PS) market in south Asia has softened, tracking the sharp losses in styrene monomer (SM) prices in recent weeks. Asia naphtha slumps to over seven-month low on tepid demand Asia’s naphtha prices are pressured down by downbeat demand amid diminishing downstream margins and ample regional supply. Japan’s Asahi Kasei fiscal Q1 net profit falls 36% on lower margins Asahi Kasei’s fiscal first-quarter net profit declined by about 36% year on year as lower margins offset a double-digit increase in sales, the Japanese producer said on Thursday. INSIGHT: Recycling as a solution to marine plastics pollution Plastics pollution of the marine environment is a global challenge that the world is trying to tackle today. Woolworths, Pact tie up to bolster use of R-PET and R-PE Australian supermarket giant Woolworths Group will replace more single-use plastics from its retail products and bolster the use of recycled polyethylene terephthalate (R-PET) and recycled polyethylene (R-PE) across chains. Asia MMA falls 10% in July on weak demand; producers mull output cuts Asia’s methyl methacrylate (MMA) spot prices shed more than 10% in July owing to poor demand and weakness in China’s domestic market, which may persist in August. OUTLOOK: Asia epoxy resins to stay sluggish; price competition may intensify Uncertain end-demand outlook and recession fears continue to haunt Asia’s epoxy resins market, with aggressive exports from China forcing some regional suppliers to lower offer. Asia July industries – a mixed bag as battle with inflation continues Asia’s manufacturing sector in July presented a mixed performance, with major economies in the northeast showing a marked slowdown in activity, as the region continues to contend with high input costs and weak demand. OUTLOOK: Asia PP wrestles with recession fears and production capacity expansion Asia’s polypropylene (PP) market is expected to continue its struggle against slow demand as a result of recession fears and looming production capacity expansion that would put even greater pressure on suppliers.
INSIGHT: US Inflation Reduction Act to boost chems going to
INSIGHT: US Inflation Reduction Act to boost chems going to sustainability
HOUSTON (ICIS)–The Inflation Reduction Act should increase demand for several chemicals used to make insulation, sealants, solar panels and other products used to produce renewable power and increase energy efficiency – while increasing taxes and making it more expensive to produce oil and gas. Incentives would encourage carbon capture and renewable energy production. Credits target biodiesel, renewable diesel and sustainable aviation fuel (SAF). Provisions promote electric vehicles (EVs). Late on Thursday, the bill received support from a pivotal vote, US Senator Kyrsten Sinema (Democrat-Arizona), the Wall Street Journal reported. Her vote makes it possible for the bill to pass the upper legislative chamber and become law after the signature of President Joe Biden. REMNANT OF BUILD BACK BETTERThe Inflation Reduction Act is the remnant of the $1.75tr Build Back Better Act, which included provisions that would expand the social safety net, fight climate change and accelerate the adoption of electric vehicles (EVs). Whether the Inflation Reduction Act lives up to its name is another matter, because several provisions could increase costs. It imposes minimum wages on certain projects. For electric vehicles, the bill imposes domestic-content requirements. The act increases several rates for oil and gas production. Regardless of whether the rates were paltry and needed updating, they will increase costs for oil and gas production. That will trickle down to the chemical industry and the rest of the economy. HIGHER PRODUCTION COSTS FOR ENERGYThe bill would increase production costs for energy by increasing the royalty rates for oil and natural gas. The offshore rate would rise to 16 2/3-18 3/4% from 12 1/2%. Onshore would rise to 16 2/3% from 12 1/2%. The minimum oil and gas bids would rise to $10/acre from $2/acre. The fossil fuel rental rates would rise to $3/acre from $1.50/acre during the first two years of the lease. It would then rise to $5/acre for the next six years and then reach $15/acre. The rental rates and royalty rates apply to federal land. The changes would not apply to private land, much of which includes the Permian and other productive oil and gas fields in Texas. The bill relies on incentives and fees to reduce methane emissions from oil and gas production. The incentives are in the form of grants worth $850m. For the fees, the government will start imposing them once producers exceed a certain threshold. The fees will start at $900/tonne of methane for 2024, $1,200/tonne in 2025 and $1,500/tonne in 2026. The American Chemistry Council (ACC) criticised the methane fees. “The cost of the methane tax would be passed through to the production of chemicals used as building block materials for virtually all manufacturing,” it said. Oil and natural gas provide chemical companies with fuel and feedstock. On the other hand, the act will require the US to conduct scheduled lease sales by the end of this year, which should end an obstacle to more energy production. HIGHER TAXESThe bill sets a minimum 15% corporate tax rate on adjusted income for companies that make more than $1bn/year for a three-year period. Several US-based chemical companies and refiners would meet this threshold. However, it is unclear how this tax will affect chemical companies and other manufacturers. Late on Thursday, the political publication The Hill reported that Sinema and another senator, Chuck Schumer (Democrat, New York) reached an agreement to protect manufacturers from the effects of the corporate minimum tax rate. As part of the agreement to win Sinema’s support, the bill also removed a provision that would close the carried interest loophole, The Hill reported. To offset the loss in revenue from the loophole and the corporate minimum tax rate, the act will add a new excise tax on stock buybacks, The Hill said, quoting an anonymous source. Prior to Thursday, the ACC welcomed the energy and climate provisions in the bill but urged lawmakers to reject the tax increases. “At a time of rising inflation, stretched supply chains and economic weakness, the new taxes could increase costs and administrative burdens for US chemical manufacturers, stifle innovation, sacrifice jobs and further escalate prices for consumers for a variety of goods,” the ACC said in a statement. Already, the chemical industry is dealing with the newly re-instated Superfund excise taxes, the ACC said. It warned that the bill’s higher taxes could slow manufacturing investment in the US. BILLIONS IN TAX CREDITS, GRANTS, REBATESThe act allocates billions of dollars to encourage consumers to buy electric vehicles and energy-efficient appliances; and to retrofit their homes to make them consume less power. The appliances and retrofits could increase demand for insulation made of expandable polystyrene (EPS) and polyurethanes. Sealing up gaps in homes would increase demand for sealants. Other improvements that qualify for the programmes include heat pumps, doors, windows and water heaters. The windows and doors could have components made of polyvinyl chloride (PVC). For electric vehicles, they consume more plastics by weight than automobiles powered by internal combustion engines (ICEs). In particular, the separators in lithium-ion batteries are made of ultra-high molecular weight polyethylene (UHMW-PE). Faster adoption of EVs should further increase demand for this material. RENEWABLE ENERGYOther provisions in the act promote solar panels and wind turbines. Solar panels are made with ethylene vinyl acetate (EVA) and polyvinyl butyral (PVB). Wind turbines are made with epoxy resins. The lubricants used in wind turbines are typically made of polyalphaolefins (PAOs), according to the publication Windpower Engineering & Development. RENEWABLE FUELSThe act extends the tax credit for biodiesel and renewable diesel to 31 December 2024 from 31 December 2022. It extends an incentive for second-generation biofuels to 2025 from 2022. It also increases the value of the fuel credit for sustainable aviation fuel (SAF). The incentives for SAF and renewable diesel could encourage refiners to build or convert units that produce these fuels. The processes used to make these renewable fuels are similar to those used to make petroleum-based products. CLEAN HYDROGENThe Inflation Reduction Act awards tax credits for low-carbon hydrogen such as green hydrogen. Green hydrogen uses electrolysers to split water molecules. The electrolysers are made with fluoropolymers such as Chemours’s Nafion, and the water will likely require some form of treatment. More water treatment would increase demands for the chemicals used in the process. Some companies plan to export green hydrogen overseas by converting it to ammonia, so ammonia production could also increase. For the chemical industry as a whole, they could use green hydrogen as an emission-free source of process heat. Chemical companies can further lower their carbon emissions by purchasing electricity from utility companies that burn blends of hydrogen in their gas-fired power plants. The credits could not be used for blue hydrogen, the production of which relies on steam methane reformers and carbon capture and sequestration (CCS). CARBON CAPTUREBlue hydrogen would still benefit from the bill, which provides incentives for CCS, including the extension and expansion of the Section 45Q carbon capture and sequestration credit. Occidental Petroleum and other oil and gas producers in the US are relying on carbon capture to offset the emissions of their products. Occidental is going as far as to build direct-air capture plants to extract carbon dioxide (CO2) from the atmosphere and use it in enhanced oil recovery. Ethanolamines are used to capture carbon dioxide from emissions and the atmosphere, so more carbon-capture projects should increase demand for them. Carbon capture could allow oil and gas producers to maintain production, which would provide chemical companies with the ethane and other natural gas liquids (NGLs) that they use for feedstock. Carbon capture is an integral part of the net-zero petrochemical project that Dow is developing in Fort Saskatchewan, Alberta province in Canada. Provisions for carbon capture should make it easier for chemical companies to expand capacity while still meeting their targets for emission reductions. Summaries and details of the Inflation Reduction Act can be found here. By Al Greenwood Thumbnail image shows electric vehicle. Image by Mario FOURMY/SIPA/REX/Shutterstock
VIDEO: China’s methanol supply and demand to rise in H2;
      margins to struggle
VIDEO: China’s methanol supply and demand to rise in H2; margins to struggle
SINGAPORE (ICIS)–Watch industry analyst Sam Liang share with us about China methanol market whose margins might still hover around break-even levels in H2. Domestic methanol prices were largely on an inverted V trend in the first half of 2022 Domestic methanol market supply expected to rise Traditional downstream demands weak while part of olefin margins poor
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