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SINGAPORE (ICIS)–au Jibun Bank’s flash manufacturing purchasing managers’ index (PMI) for Japan rose to 48.6 in March from 47.7 in February as output and new orders contracted at a slower pace, the Japanese bank said on Friday. A PMI reading above 50 indicates expansion in the manufacturing economy, while a lower number denotes contraction. “Both output and new orders were scaled back further in the latest survey period, although the respective rates of reduction were the softest for five months,” au Jibun Bank said in a statement. Moreover, there was some evidence of easing cost pressures as seen by the rate of input price inflation dipping to the lowest since August 2021, it said. Japanese manufacturers were also buoyed by improving supply chains with average lead times for inputs extending to the lowest extent for 29 months, the bank said. “Concurrently, business sentiment strengthened at the end of the first quarter to reach the strongest since last October,” it added.

SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson. China’s polyethylene (PE) and polypropylene (PP) markets were, in our view, never going to see a big recovery in 2023. Conventional opinion was that by now we would be seeing a strong recovery. But sadly, because of record high levels of oversupply, a recovery may not happen until as late as 2025. In PE, for example, ICIS forecasts that global capacity exceeding demand will be 26m tonnes this year compared with the 10m tonnes/year average in 2000-2021. Much of the new capacity is in China and southeast Asia. We can see how far we are from recovery from the China PE and PP prices spreads over Japan naphtha costs. Spreads have always been the single best measure of supply and demand balances. For example: The average China PE spread between 1 January and 17 March this year was just $290, the lowest since our assessments began in 1993 – and lower than last year’s average spread of $321/tonne, which was the previous record low. Between 2000 and 2021, the annual spread averaged $532/tonne. This means that until spreads increase by 83% from their current levels, there will have been no recovery. We believe one of the reasons why some market participants thought there would be a strong rebound was that they weren’t considering the impact of demographics and debt. Let us stress again, though, that as the year progresses, China’s demand for PE and PP will surely improve on resumed economic activity. But to repeat our analogy, the automobile (the Chinese economy) was travelling at 30km/hour during zero-COVID because large swaves of the economy were shut down. The speed of the car must therefore pick up to, say, 60km/hour as people travel and shop more etc. But because of debts and demographics, the economy cannot return to 110km/hour. Crucially, an economy travelling at 60km/hour is nowhere near fast enough to absorb the PE and PP oversupply in 2023 – and very probably in 2024 and 2025 as well. 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.

HOUSTON (ICIS)–The American Chemistry Council (ACC) submitted a letter to US Senators holding a hearing on rail safety saying that it supports a multi-layered approach to transporting hazardous chemicals by rail and outlining the industry’s commitment to rail safety. Chris Jahn, ACC president and CEO, said he supports the legislative intent of the Railway Safety Act of 2023 and other proposals to further improve the safety of the nation’s rail network. Jahn said the range of measures supported by the ACC include establishing federal standards for railcar defect detectors, working to improve tank car performance, and supporting emergency responders. The chemicals industry has shared its concerns over the levels of service provided by the nation’s Class 1 railroads for several years, but the recent derailment of a Norfolk Southern train in Ohio carrying vinyl chloride monomer (VCM) has brought a new level of attention to rail safety. Jahn said the ACC encourages the development of federal standards for the placement and operation of railcar defect detectors, and that the requirements should be developed through a federal rulemaking process, be risk- and performance-based, and allow for continued technological progress and advancement. Jahn noted that shippers have made significant investments in recent years to upgrade their fleets and are currently working toward a mandated replacement of tank cars used to transport Class 3 flammable liquids by 2029. He said the ACC supports an earlier phaseout deadline for these cars based on the rail equipment industry’s tank car manufacturing and retrofit capacity. The letter also urged improved training and flow of information for first responders. “It is critical that emergency responders have the information, training, and resources they need to respond to a rail incident, particularly one involving hazardous materials,” Jahn said. In addition, the ACC supports new federal standards to expand the types of hazardous material shipments that must be reported in advance to state agencies. Jahn said the ACC also supports increasing the registration fees paid by hazardous materials shippers and carriers in order to fully fund the Pipeline and Hazardous Materials Safety Administration’s grant programs that assist emergency response planning and training. “ACC supports a comprehensive and data-driven approach to enhance the safe transportation of hazardous materials by rail,” Jahn said. “Safety is a shared responsibility, and shippers, rail carriers, along with the federal government, have made steady progress by working together,” he said. “But we can, and must, do more.”

SAO PAULO (ICIS)–Global demand for petrochemicals will remain “challenging” in 2023 and the recovery will only come from 2024 onward, the CFO at Brazil’s petrochemicals major Braskem said on Thursday. Pedro Freitas added that the recovery in petrochemicals demand may start “by the end of 2023”, although he argued the recovery will depend on the pace the Chinese economy re-opens. China’s re-opening will be key for petrochemicals spreads, which were poor in 2022 as input costs rose and prices fell. Freitas was speaking to reporters and financial analysts after Braskem said earlier on Thursday it had posted a fourth-quarter net loss of $326m on the back of poorer spreads for many of the products it produces, especially those for polyethylene (PE) and polypropylene (PP). ALL ABOUT CHINABraskem’s CFO said spreads for key polymers PE and PP, key feedstocks for plastics production, should start recovering in 2023 after “some positive news” coming from China’s re-opening. However, it should remain an uphill struggle for Braskem. “We still see a challenging scenario in 2023, but 2024 and 2025 should be more positive as we don’t see enough capacity coming to the market, which will be below demand growth. If China recovers faster than expected, that could be even more positive,” said Freitas. The CFO conceded large petrochemicals capacities are set to come online in 2023 and the years ahead, but he said the chance for delays could be an opportunity for Braskem to improve its performance. Braskem’s CEO, Roberto Bischoff, also present at the press briefings, added that the environment for petrochemicals remained “volatile” and added that, while the industry awaits for China to prop up demand, Braskem would focus on cost control as well “capture” new markets. “The pace of China’s reopening will be one of the main factors in the recovery of spreads in the international market and the resumption of the upcycle. In this scenario, we are prioritising actions to maximise operations, capture sales opportunities … and maintain cost discipline,” said Bischoff. Earlier on Thursday, Freitas said Braskem could consider expanding its Duque de Caxias, Rio de Janeiro, cracker if more domestic natural gas liquids (NGLs) from pre-salt reserves become available. In an interview with ICIS earlier in March, the director for Latin America corporates at US credit rating agency Fitch said demand for petrochemicals should grow healthily if China’s re-opening happens faster than expected. “[That] would have a huge impact on petrochemicals as the country is a big consumer of plastics. That, in turn, could have a huge impact on global prices,” said Lincoln Webber. POLYMERS PROTECTIONISTThe Brazilian government recently announced a hike in import tariffs for several petrochemicals, a move in trade policy for which Braskem had been lobbying for. Smaller players in the Brazilian petrochemicals industry have said, however, the new tariffs would sharply increase their costs to import product from overseas, mostly from Asia. The hike in tariffs, however, would prop up Braskem’s earnings before interest, taxes, depreciation and amortisation (EBITDA), according to its CFO. “Analysts estimated the previous lower tariffs had an impact of $150m in our EBITDA in 2022 and 2023. With this [import tariff hike], we will recover a part of that. It will also have an impact in our recovery of market share,” said Freitas. “This resetting of tariffs put them in previous levels, and to the average levels of other products. It brings us back to a competitive position regarding market share.” Front page picture: Facilities operated by Braskem Idesa in Mexico, archive image; Braskem Idesa is a joint venture between and Mexico’s Grupo Idesa Source: Sashenka Gutierrez/EPA/Shutterstock

SAO PAULO (ICIS)–Braskem could consider expanding its Duque de Caxias, Rio de Janeiro, cracker if more natural gas liquids (NGLs) from pre-salt reserves become available, the CFO at the Brazilian petrochemicals major said on Thursday. Pedro Freitas said Braskem remains in “constant dialogue” with players in the pre-salt natural gas and crude oil industry and is well-positioned to take advantage of more NGLs once they are available. However, he added: “We don’t see that [expansion at Duque de Caxias] happening in the short term.” Freitas was speaking to reporters and financial analysts after Braskem said earlier on Thursday it had posted a fourth-quarter net loss of $326m on the back of poorer spreads for many of the products it produces, especially those for polyethylene (PE) and polypropylene (PP). Following the results publication, the company’s stock was down more than 4% to Brazilian reais (R) 16.77/share ($3.18/share) by 13:00 local time on Thursday. “We would be interested [in the expansion] if there are more NGLs available from pre-salt reserves [as] we would be interested in having access to those volumes. The most competitive investment in Brazil today would be expanding our cracker in Rio,” said Freitas. “That would be the best alternative for the country about where it allocated additional feedstocks if they become available. We keep tracking pre-salt activity and are in constant dialogue with players in the industry to be positioned [to have access to those feedstocks].” Braskem has been mulling an expansion at Duque de Caxias for years; it has hinted that it could expand its production capacities by as much as 50%. Currently, Braskem produces ethylene, high-density polyethylene (HDPE), linear low-density polyethylene (LLDPE), propylene and PP at the facility. Duque de Caxias Capacity Ethylene 520,000 HDPE 270,000 LLDPE 270,000 Propylene 75,000 PP 310,000 Source: ICIS Ethane is one of those NGLs Braskem could use to produce ethylene and then polymers. Pre-salt layer reserves are found in the Atlantic’s African and Brazilian coasts, and pre-salt oil reserves are thought to be a significant fraction of the world’s oil reserves. Brazil’s state-owned energy major Petrobras is building a pipeline called Rota 3 from its pre-salt wells in the Atlantic to its site in Itaborai in Rio de Janeiro, where it is building a gas processing plant, although the project has been marred by several issues. Once that plant is completed, Petrobras will be producing NGLs which could provide Braskem with the additional feedstock it needs to expand Duque de Caxias. According to Brazilian oil and gas company Petrobras, the oil and natural gas reserves lie below an approximately 2,000-metre-thick layer of salt, which in turn is beneath more than 2,000 metres of post-salt sediments in places, which in turn is under water depths between 2,000 and 3,000 metres in the south Atlantic. ($1 = R5.27) Additional reporting by Al Greenwood and Yashas Mudumbai 

Updated on 23 March with the latest headlines On this topic page, we gather the latest news, analysis and resources, to help you to keep track of developments in the area of sustainability in the fertilizers industry. LATEST NEWS HEADLINES EU unveils plans to tackle greenwashing By Morgan Condon 23-Mar-23 13:39 LONDON (ICIS)–The European Commission has launched a proposal to stamp out greenwashing in a bid to support consumers seeking sustainable alternatives. India’s IFFCO and CIL to manufacture nano DAP for three years By Chris Vlachopoulos 20-Mar-23 15:35 LONDON (ICIS)–The Indian Union Minister of State for Chemicals and Fertilisers, Bhagwanth Khuba, has confirmed that Fertilizer cooperative IFFCO and Coromandel International Ltd (CIL) will manufacture nano diammonium phosphate (DAP) for a period of three years. USDA awards Ostara funds to boost sustainable phosphate fertilizer output By Chris Vlachopoulos 15-Mar-23 11:48 LONDON (ICIS)–The US Department of Agriculture (USDA) has awarded Ostara $7.6m as part of its initiative to increase its domestic fertilizer production, with a focus on sustainability and innovation. Canadian prime minister confirms fertilizer emission goal is voluntary By Erica Sesay 07-Mar-23 14:26 LONDON (ICIS)–Canadian prime minister Justin Trudeau assured farmers this week that the fertilizer emissions reduction target proposed by the government is voluntary, not mandatory. US fertilizers industry increases carbon capture in 2021 – TFI By Erica Sesay 20-Feb-23 17:10 London (ICIS)–The US fertilizers industry captured 31% of all CO2 generated per tonne of nutrient produced in 2021, up from 9% captured in 2013 according to The Fertilizers Institute (TFI’s) 2022 sustainability report. Indian president calls for reduction in chemical fertilizer use By Erica Sesay 13-Feb-23 11:54 LONDON (ICIS)–Indian president Droupadi Murmu has called for a reduction in chemical fertilisers use in order to protect the country’s soil health. IFFCO plans to export nano urea to 25 countries By Sylvia Traganida 10-Feb-23 16:06 LONDON (ICIS)–Indian Farmers Fertiliser Cooperative Limited (IFFCO) is planning to export nano urea to 25 countries and expects its output to reach 300m bottles by December 2024, according to local media reports. Amman selects Elessent Clean Technologies for Indonesia sulphuric acid plant By Mark Milam 08-Feb-23 21:46 HOUSTON (ICIS)–Indonesian mining company Amman Mineral Industri (AMIN) has selected Elessent Clean Technologies to provide the process technology for the new smelter off-gas sulphuric acid plant equipped with wet gas scrubbing technology that it will construct in Sumbawa, Nusa Tenggara Barat, Indonesia. Lotte Chemical forms clean ammonia consultative body with RWE and Mitsubishi Corporation By Mark Milam 08-Feb-23 23:32 HOUSTON (ICIS)–Lotte Chemical announced it has formed a clean ammonia global consultative body with RWE, a German energy company, and Japan’s Mitsubishi Corporation, with a goal to cooperate and jointly develop a large-scale clean ammonia production and supply chain in Asia, Europe and US. Global 2020-2021 specialty fertilizer demand growth led by north America, Asia By Sylvia Traganida 08-Feb-23 10:19 LONDON (ICIS)–Global demand for specialty fertilizers has grown by 5.7-6.7% in 2020-2021, according to the International Fertilizer Association (IFA). BASF and Cargill extend enzymes business and distribution to US By Morgan Condon 25-Jan-23 12:59 LONDON (ICIS)–BASF and Cargill are expanding their partnership by rolling out their enzyme solutions to animal protein producers in the US, the German major announced on Wednesday. Saudi Aramco awards sulphur facilities overhaul contract to Technip By Erica Sesay 24-Jan-23 12:50 LONDON (ICIS)–Saudi Aramco has awarded a contract to engineering firm Technip Energies to upgrade the sulphur recovery facilities at its Riyadh refinery, Technip announced on Tuesday. The contract covers improving the performance of the existing three sulphur recovery units to comply with more stringent regulations for sulphur dioxide emissions, with recovery efficiency at more than 99.9%. India sets green hydrogen targets for shipping, oil & gas, fertilizer sectors By Priya Jestin 16-Jan-23 09:42 MUMBAI (ICIS)–As part of its aim to achieve its net zero carbon emission goal by 2070, the Indian government has released a blueprint for its National Green Hydrogen Mission which has set consumption targets for various industries, including the oil and gas and fertilizer industrie Germany misses climate target despite lower energy consumption By Stefan Baumgarten 06-Jan-23 16:00 LONDON (ICIS)–Germany missed its 2022 carbon dioxide (CO2) emissions reduction target despite declining energy consumption and an increase in the use of renewables, according to a study this week. EU CARBON BORDER ADJUSTMENT MECHANISM (CBAM) EXPLAINED What is it? The risk of carbon leakage frustrates the EU’s efforts to meet climate objectives. It occurs when companies transfer production to countries that are less strict on emissions, or when EU products are replaced by more carbon-intensive imports. This new mechanism would counteract this risk by putting a carbon price on imports of certain goods from outside of the EU. How will it work? EU importers will buy carbon certificates corresponding to the carbon price that would have been paid, had the goods been produced under the EU’s carbon pricing rules. Conversely, once a non-EU producer can show that they have already paid a price for the carbon used in the production of the imported goods, the corresponding cost can be fully deducted for the EU importer. This will help reduce the risk of carbon leakage by encouraging producers in non-EU countries to make their production processes greener. A reporting system will apply from 2023 with the objective of facilitating a smooth roll out and to facilitate dialogue with non-EU countries. Importers will start paying a financial adjustment in 2026. How is the fertilizer industry affected? The fertilizer industry is one of the sectors to fall under the CBAM. The more energy-intensive nitrogen fertilizers will be affected most in the sector by the mechanism. DEFRA CONSULTATIONS EXPLAINED The UK’s Department for Environment, Food & Rural Affairs (DEFRA) launched a consultation at the beginning of November 2020 on reducing ammonia emissions from urea fertilizers. The consultation ran until 26 January 2021. It set out three options for tackling ammonia emissions: A total ban on solid urea fertilizers A requirement to stabilise solid urea fertilizers with the addition of a urease inhibitor. A requirement to restrict the spreading of solid urea fertilizers to between 15 January and 31 March of a given year. Liquid urea is excluded from any new rules or restrictions. DEFRA is currently analysing the feedback received. In March 2022, DEFRA announced that it had delayed introducing restrictions on the use of urea by at least a year to support farmers with fertilizer availability and keep their costs down Should DEFRA decide to restrict the use of urea in the future, growers would be left with just ammonium nitrate-based fertilizers. PREVIOUS  NEWS HEADLINES TFI reacts to US Congress passing the Water Resources Development ActHelm becomes a shareholder in UK bio-fertilizer company Unium Bioscience Yara inks deal to deliver fossil-free green fertilizers to Argentina Canadian firms plan fuel cell generator pilot using green ammonia Deepak Fertilizers awards contract to reduce emissions, increase productivity Saudi Aramco launches $1.5bn sustainability fund to support net zero ambition CF Industries and ExxonMobil plan CCS project in Louisiana Canada’s plan to cut fertilizer emissions is voluntary – minister Canada’s fertilizer emission goal raises food production concerns Uniper, Vesta to cooperate on renewable ammonia site in the Netherlands German Uniper to work with Japan’s JERA on US clean ammonia projects ADNOC ships first cargo of low-carbon ammonia to Germany US Mosaic and BioConsortia expand collaboration to microbial biostimulant IMO deems Mediterranean Sea area for sulphur oxides emissions control Canada’s Soilgenic launches new enhanced efficiency fertilizers technology for retail Austria’s Borealis aims to produce 1.8m tonnes/year of circular products by 2030 European Parliament rejects proposed carbon market reform IFA ’22: southern Africa looks to bio-fertilizer as cheaper, sustainable option IFA ’22: Indian farmers will struggle to embrace specialty fertilizers – producer Canadian Nutrien plans to build world’s largest clean ammonia facility in Louisiana Japan’s JGC Holdings awards green ammonia plant contract to KBR Bayer to partner with Ginkgo to produce sustainable fertilizers Australia Orica and H2U Group partner on Gladstone green ammonia project Canada sets tax credit of up to 60% for carbon capture projects UK delays urea restrictions to support farmers as fertilizer costs at record high EU states agree to back carbon border tax Yara to develop novel green fertilizer from recycled nutrients USDA announces plans for $250m grant programme to support American-made fertilizer Canada seeks guidance to achieve fertilizer emissions target Fertilizer titan Pupuk Indonesia develops hydrogen/blue ammonia business India launches green hydrogen/ammonia policy, targets exports Canada AmmPower to develop green hydrogen and ammonia facility in Louisiana US DOE awards grant to project to recover rare earth elements from phosphate production Fertiglobe, Masdar, Engie to develop green hydrogen for ammonia production Czech Republic’s Spolana enhances granular AS production India’s Reliance to invest $80bn in green energy projects Yara, Sweden’s Lantmannen aim to commercialise green ammonia by 2023 Novatek and Uniper target Russia to Germany blue-ammonia supply chain Fertz giant Yara goes green with electrification of Norwegian factoryCanada Arianne Phosphate exploring use of phosphate for hydrogen technology FAO and IFA renew MoU to promote sustainable fertilizer use Sumitomo Chemical, Yara to explore clean ammonia collaboration Sri Lanka revokes ban on imports Tokyo scientists convert bioplastic into nitrogen fertilizer Aramco plans Saudi green hydrogen, ammonia project China announces action plan for carbon peaking & neutrality Saudi Aramco targets net zero emissions from operations by 2050 Fertiglobe goes green with Red Sea zero-carbon ammonia pro Australian fertilizer major Incitec Pivot teams up for green ammonia study INTERVIEW: BASF to scale up new decarbonisation tech in second half of decade – CEO India asks fertilizer companies to speed up production of nano DAP Japan’s Itochu set to receive first cargo of blue ammonia for fertilizer use Norway’s Yara acquires recycled fertilizers maker Ecolan Bayer Funds US start-up aims to cut nitrogen fertilizer use by 30% BP: Green ammonia production in Australia feasible, but needs huge investment Origin and MOL explore shipping green ammonia from Australia India’s IFFCO seeks to export nano urea fertilizer Sri Lanka reinstates ban on import of chemical fertilizers Nutrien to cut greenhouse gas emissions 30% by 2030 RESOURCES IFA – Fertilizers and climate change  TFI – Sustainability report 

This story has originally been published for ICIS Power Foresight subscribers  and was written by Luca Urbanucci, EU Power Analyst. Our ICIS Power Foresight customers have access to extensive modelling of different options and proposals. Our long-term price forecast now also extends to 2050 across European countries. If of interest, please get in contact with Lead Analyst Matthew Jones (matthew.jones@icis.com).  At the end of last year, the French power market witnessed a rapid drop in the Q1 ’23 price as the delivery period approached, certainly driven by the reduction of the natural gas price, but also by the prompt disappearance of a significant risk premium, which had been in turn mainly boosted by uncertainties over nuclear generation and fear of potential cold spells. Recent discoveries of new cracks at French reactors, together with a general uncertainty about future nuclear availability that has never disappeared, have inflated the Q1 ’24 price for next winter, similarly to what happened last year. In this analysis, ICIS adopts a ‘theoretical price-setting plant’ approach to investigate the extent to which future French electricity prices are impacted by risk premium. First, what happened last year to the Q1 ’23 product is reviewed, and then the current situation of the Q1 ’24 contract is analysed and the reasons behind the risk premium are discussed. A second analysis on the topic will follow, investigating different scenarios on French power for next winter, and presenting the results from the soon-to-be launched ICIS Power Foresight Model. Background Along with the gas crisis that has affected the whole of Europe, France has also faced problems related to their ageing nuclear reactors. In 2022, the national nuclear generation plummeted to its lowest level since the 1980s at around 278TWh, mainly due to corrosion problems. The generation was below 30GW for a large part of the year (from April to November) but improved in December when returned above the 40GW level. The outlook for 2023 was generally more positive, with an expected generation by EDF of 300-330TWh. Yet, the recent discovery of new corrosion cracks and EDF’s need to review the fleet control strategy accordingly have brought uncertainty back, with a consequent impact on markets. At present, however, EDF has not revised down the expected annual generation, and news on the updated control and maintenance plan for reactors is awaited. As already mentioned, the general uncertainty and the news about future nuclear availability deeply impacts the French price curve. Nevertheless, this analysis does not go into the details of French nuclear issues (which will be dealt with in a separate analysis), but rather focusses on assessing the risk premium priced in the French Q1 ’23 and ’24 products and discussing the reasons behind it. Methodology The methodology herein adopted is based on the evaluation of the efficiency of the theoretical gas plant that would set the power price in the delivery period. Given the prices of natural gas, carbon, and power for a certain future contract, the efficiency of the above-mentioned theoretical gas plant can be easily evaluated. The efficiency can then be compared to historical averages and to the efficiency of actual plants to assess the “fairness” of the contract price. The main advantage of this methodology is that the analysis is stripped of gas and carbon prices, as they can vary (significantly) over time, thus making it possible to assess the price of electricity net of these two drivers. Moreover, the methodology can also be reserved, i.e., by evaluating the electricity price implied by a gas plant (set the efficiency) given the natural gas and carbon prices. In this case, the implied price can then be compared to the contract price. Q1 2023 product In this section we apply the methodology to analyse the progress of the French first-quarter 2023 baseload power contract, for the whole period of trading (from 4 January to 30 December 2022). The efficiency of the theoretical price-setting gas plant was around 35-40% in the first months of the year, slightly below the average value actually realised in 2022 (i.e., 41% – evaluated considering day-ahead market prices). From April onwards, largely as a reaction to growing concerns about reduced nuclear generation and potential cold spells, the theoretical efficiency of the price-setting gas plant dropped significantly and hovered around 15-25% until December, when nuclear availability returned above the 40 GW threshold, restoring confidence to the market. Comparing the efficiency of the theoretical price-setting plant to that of the least efficient French gas plant (around 32% according to the ICIS analytics database), it is clear how the price of French Q1 2023 power was for a significant part of the year inflated by market risk premium, well above the level suggested by fundamentals. Moreover, the efficiency of the theoretical plant that has set the price so far in 2023 is around 51%, clearly showing how the market substantially overestimated the value of the contract. The chart that displays the Q1 2023 contract price, along with the implied prices of gas plants with different efficiencies, helps to assess how much the market overestimated the value of the contract during last year. Considering as reference the 2022 average efficiency of the theoretical price-setting gas plant (41%), the price was on average around €275/MWh higher (+81%) than it should have been. In particular, the price was consistently overestimated by more than €400/MWh during all of August, September, and October, largely due to the uncertainties surrounding the gas supply and fear of potential demand curtailments. Q1 2024 product This section focusses on the French first-quarter 2024 baseload power contract, from day one of trading (3 January 2023) to date. The efficiency of the theoretical price-setting gas plant hovered around 30% from the beginning of the year until the first week of March, when it fell below 25% following the discovery of an unexpected crack at the Penly 1 reactor, and the subsequent request by the French Nuclear Safety Authority (ASN) to EDF to revise its maintenance and repair programme. The efficiency has always been well below the 2022 realised average (41%), but it is now even below the threshold of the least efficient plant (32%), as was the case for the Q1 ’23 product during much of last year. The comparison between the Q1 ’24 price and the implied-price sensitivity considering a range of plant efficiencies shows how the market is currently overestimating the value of the contract above reasonable levels, short of a massive reduction in nuclear availability leading to security of supply issues (see section below). As of 21 March, the French Q1 ’24 is assessed at €309/MWh, while the implied price from 40%- and 50-% efficient plants is €164 and €132/MWh, respectively. Should the efficiency of the theoretical price-setting plant in Q1 ’23 be in line with the average of what was realised in 2022 (41%), the delivery price would be about half of its current market value. If the average efficiency realised during the first quarter of 2022 is considered (45%), a current market overestimation of around 110% is assessed. What is the risk that is being priced in? Thus, the question arises: what is behind the risk premium that the market deems to be priced in the French first-quarter 2024 product? Certainly, a general risk around gas prices (and to an extent around carbon prices) exists. Yet, the future price of gas (and carbon) already accounts for this risk, and, in any case, this applies across all Europe, whereas the French product is the only one trading so far above the fundamentals. This means that the premium is entirely due to the perceived risk around reduced nuclear availability. However, the market’s fear does not seem to be that a low nuclear generation may just push the power system to the end of the French merit order (which is a 32%-efficient gas plant) or even to the end of the merit order in connected countries (e.g., a 21%-efficient coal plant in Germany – as the price would likely be set by imports if nuclear generation would fall significantly). Indeed, the current price would imply that these low-efficient plants would set the price in almost every hour of the quarter, which is highly unrealistic. To justify these price levels, we have to get into the realms of supply shortages, where scarcity pricing can come into play, accounting for very high values in certain hours. This applied as well to the Q1 23 product, but scarcity prices have not materialised so far this year, as the highest hourly value has been €270/MWh. Yet, a perfect storm of simultaneous and prolonged low nuclear availability and cold weather could trigger security of supply issues next winter, resulting in skyrocketing prices (at least for some hours). In the end, it is key to assess the likelihood of this scenario occurring. In the next analyst update on the topic, we will investigate how low French nuclear availability must drop to endanger supply security, and compare such a scenario with that adopted in the ICIS Foresight Model. Conclusions The ‘theoretical price-setting gas plant’ analysis suggests that the current price of French Q1 ’24 is largely inflated by risk premium, as the resulting efficiency is around 20% (well below that of the least efficient plant, which is around 32%). As a result, the French Q1 ’24 is currently about twice as much as it should be, if the efficiency realised in 2022 is considered as reference. Such a high price level cannot be justified by the fundamentals alone and is the result of the market’s fear of scarcity pricing scenarios for next winter, resulting from security of supply issues that may occur if nuclear availability were to be very low in conjunction with cold spells. Looking back to what happened to the Q1 2023 contract, the analysis shows that the price has been on average overestimated by around 80% during 2022 (adjusted for gas and carbon price effects). Indeed, fears of supply shortages for this winter have not become material so far. In the next analyst update on the topic, we will investigate how low French nuclear availability must drop to endanger supply security, and compare such a scenario with that adopted in the ICIS Foresight Model.

NEW YORK (ICIS)–The failure of two sizeable banks (Silicon Valley Bank and Signature Bank) in the US and the crisis of confidence contagion spreading to other regional banks and now European financial institutions threatens to significantly tighten lending conditions at the very least, further slowing economic growth and potentially tipping US and European economies into recession. The implications for the economically sensitive chemical industry are huge, as a major step down in GDP growth or a contraction would crater demand in an already weak environment. The US regional banking crisis reduces the odds of a soft landing, and our base case is still a mild recession lasting two to three quarters. Stabilising the financial system will be critical to keeping the downturn mild. The emergency takeover of Credit Suisse by UBS at the behest of the Swiss government highlights the inherent risks to the global economy from banking contagion. The US Federal Reserve raised interest rates at a record pace through 2022 to tamp down runaway inflation. The result has been a collapse in the value of long-term Treasuries and other long-duration debt such as mortgage-backed securities (MBS) that banks accumulated on their books. In a bank run, banks must sell these securities at big losses to cover outflows. The Fed, Treasury, and Federal Deposit Insurance Corporation (FDI)C stepped in on 12 March with a strong move to halt a run on regional banks, guaranteeing all deposits at the two banks above the protected $250,000 threshold. The Fed also created a new lending facility to boost liquidity where banks can pledge debt securities as collateral at par (face value), even if the value of those securities may be far lower. Yet without an explicit guarantee that all uninsured bank deposits (those over $250,000) will be safe, it’s hard not to believe large depositors, including businesses, will continue to take funds out of smaller regional banks and put them into the ones deemed “too big to fail”. DOWNBEAT DATAMeanwhile, the latest economic data from the US shows weakening consumer spending and inflation at the producer level. Retail sales fell by 0.4% month on month in February, while the Producer Price Index (PPI) fell by 0.1%.  Yet the key Consumer Price Index (CPI) was up by 0.4% in February from January and up by 6.0% year on year. The core CPI (excluding food and energy) being up 5.5% from last year is still well above the Fed’s 2% inflation target. The Fed on 22 March raised rates by another 0.25 percentage points and softened its stance towards further hikes in the light of uncertainty amid the regional banking crisis. The Fed remains undeterred in its goal of bringing inflation down to its 2% target. Fed chair Jerome Powell acknowledged that the banking turmoil will likely tighten credit conditions, but added that it is too early to tell the extent of the impact. GROWTH SLOWLY RISINGICIS expectations for US GDP growth are at around 0.6% in 2023 and 0.7% in 2024.  Global GDP is forecast to grow at 1.8% in 2023, rebounding to 2.8% in 2024. The US industrial sector is already taking a hit, with the latest ISM US Manufacturing Purchasing Managers’ Index (PMI) in contraction (below 50) in February for the fourth consecutive month at 47.7. However, the Services PMI remains strong, with the February reading at 55.1. The labour market continues to show resilience, with unemployment ticking up slightly to 3.6% in February. Wage gains have moderated, providing some relief on the inflation front. Meanwhile, the ICIS US Leading Business Barometer (LBB) rebounded in February after 11 months of decline but is still signalling recessionary conditions. Even as interest rates are poised to decline heading into a recession, tighter credit conditions will continue to weigh on the key housing and automotive end markets. ICIS projects that US housing starts will plunge by 19% to 1.26m in 2023. While light vehicle sales are expected to rebound by 7% to 14.7m units this year on easing supply-chain constraints, they will remain far below the pre-pandemic 2019 level of 17.0m. Additional contribution from ICIS senior economist Kevin Swift

LONDON (ICIS)–The European Commission has launched a proposal to stamp out greenwashing in a bid to support consumers seeking sustainable alternatives. In the Proposal for a Directive on Green Claims published on Tuesday, the paper demands more stringent measures for companies to prove environmental claims and transparent labelling. Evidence from a public consultation in 2020 and proposals supporting the green transition indicated “misleading practices, such as greenwashing and lack of transparency and credibility of environmental labels” happened at various stages of consumption. More than half of the samples studied in 2020 made environmental claims that were vague, misleading or unfounded, with 40% of the claims unsubstantiated. This new proposal would be implemented alongside the Unfair Commercial Practices Directive to “tackle false environmental claims by ensuring that buyers receive reliable, comparable and verifiable information,” the paper said. The study found that consumer trust in environmental claims was quite low, and that in current conditions companies offering truly sustainable products are at a disadvantage, and face unnecessarily high compliance costs. The change will mean traders would not be able to deceive consumers about the environmental or social impact, durability, and reparability and would be prevented from making generic, unproven environmental claims. It would also restrict the presentation of legal requirements as a distinctive feature offer as well as any sustainability labels not based on a certification scheme or established by public authorities. “Companies routinely use environmental claims to market their goods, and when consumers see those claims, it’s difficult to separate truth from fiction,” said Commissioner Virginijus Sinkevicius, responsible for the Environment, Oceans and Fisheries. “I have seen jackets where on the label it’s written that they are made from recycled plastic bottles, but when you look closer only 1% is made from recycled bottles. This is what we want to avoid.” Sinkevicius added that the proposal “has teeth” as EU Member States would be able to carry out enforcements including inspections, sanctions and judicial pursuits in line with consumer protection laws. Thumbnail image shows a bottle deposit in Utrecht, the Netherlands (image credit: Hollandse Hoogte/Shutterstock)

SINGAPORE (ICIS)–The Philippines’ central bank hiked its policy interest rates by 25 basis points on Thursday with inflation expected to remain elevated and projected to average higher than the target this year. Full-year inflation average projected at 6.0% February inflation dips but remains above 8.0% 25bps rate hike likely in May before pause Effective 24 March, the interest rates at its overnight reverse repurchase facility will be 6.25%, the Bangko Sentral ng Pilipinas (BSP) said in a statement. The decision came after the Federal Reserve issued a similar increase in its benchmark interest rates despite recent bank failures in the US. Current conditions “warranted a continuation of monetary tightening to anchor inflation expectations,” the BSP said, adding that it expects 2023 inflation to average 6.0%, above the 2.0-4.0% target range, before falling to an average of 2.9% in 2024. “The effect of supply shortages on domestic food prices remains a concern, while the potential impact of higher transport fares, increasing electricity rates, as well as above-average wage adjustments in 2023 point to the broader-based nature of price pressures,” the BSP stated. The central bank noted that it may not be the end of its monetary tightening cycle. “Further policy tightening will also preserve the buffer against external spillovers amid heightened uncertainty and volatility emanating from financial sector distress in advanced economies,” it said. Consumer inflation in February stood at 8.6%, down from 8.7% in the previous month and dipping for the first time in six months. “We think the slowdown in inflation was a major factor in the BSP’s decision to ease the pace of tightening,” said Makoto Tsuchiya, assistant economist, at the research firm Oxford Economics in a note. In previous monetary policy meetings, the BSP had been raising interest rates by 50bps. “We expect the BSP to raise the policy rate again by 25bps at its May meeting, before holding the rate at that level throughout the year,” Tsuchiya said. Barring any supply shock, inflation in the Philippines should trend down. “However, risk of further/bigger hikes cannot be ruled out if the peso depreciates a lot given ongoing external pressures,” the economist said. Meanwhile, the BSP is keeping a “watchful eye over developments in the international banking industry,” even as it assessed the local banking system as “resilient to evolving market conditions.” Focus article by Pearl Bantillo 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.