Chemical Prices, Analytics and Forecasts

SINGAPORE (ICIS)–Click here to see the
latest blog post on Asian Chemical Connections
by John Richardson. Today’s uses China’s
polypropylene (PP) trade flows as an example,
but what applies here will of course apply to
global trade in all the petrochemicals.

Because of geopolitics, trade tensions,
sustainability and the impact on demand of
ageing populations, you need a wide range of
scenarios for China’s PP trade in 2024-2030.

For example: Under the ICIS base case, China’s
PP operating rates are forecast to fall from a
2010-2023 average of 86% to just 73% on
overcapacity. But good demand growth of 4% per
annum results in net imports averaging 5m
tonnes a year.

Under my Alternative Scenario 1, China runs its
plants at an average 86% operating rate in
order to boost exports, as the factors detailed
above don’t significantly reshape global trade.
This places China in an average annual net
export position of 2m tonnes. Demand growth is
again a healthy 4%.

Alternative Scenario 2, which is my preferred
scenario, again involves China running its
plants at 73%. Geopolitics and increased trade
tensions etc mean it cannot increase its
exports. This leaves it in an almost balanced
position. It is in a balanced position because
an operating rate of 73% is enough to meet
local demand, as domestic demand growth falls
to 1.5% on long-term structural economic
challenges centred on an ageing population.

This underlines how we are no longer in the
comfortable petrochemical environment of
1993-2021 during the Supercycle.

During this period, success was all but
guaranteed through building more and more
capacity to meet booming demand while ideally
ensuring that new plants had strong feedstock
cost positions.

But now markets are becoming more nuanced, more
complex, and potentially much more local.
Localisation is again my preferred scenario.

Does your company accept that these changes are
a scenario worth planning for? And if so, do
you have the resources to plan accordingly? How
do you start by persuading enough people to
listen?

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.

05-Feb-2024

SINGAPORE (ICIS)–Here are the top stories from
ICIS News Asia and the Middle East for the week
ended 2 February 2024:

Asia
R-PE spot market mood bolstered by PE price
hikes
By Arianne Perez 02-Feb-24 12:11 SINGAPORE
(ICIS)–Buying appetite for recycled
polyethylene (R-PE) in Asia has been
significantly diminished due to inflationary
pressures, along with the recent spikes in
shipping costs.

Snug
supply props up Asia MEG; discussions to wane
as holiday nears
By Judith Wang 02-Feb-24 14:08 SINGAPORE
(ICIS)–Snug supply has pushed up Asia’s
monoethylene glycol (MEG) prices to the peak so
far in 2024, but spot discussions are expected
to wane in the coming week ahead of the Lunar
New Year holiday.

Cold
snap disrupts China’s chemical freight
market
By Hwee Hwee Tan 01-Feb-24 13:05 SINGAPORE
(ICIS)–An unusually frigid winter weather has
been holding up China’s port operations,
tightening tanker supply and pushing up
chemical freight costs into February.

INSIGHT: Asia
PX-PTA-polyester chain margins expected to
remain concentrated in the upstream in
2024
By Jimmy Zhang 01-Feb-24 22:54 SINGAPORE
(ICIS)–Paraxylene capacity in Asia expanded at
a compounded average rate of 11.6% from 2018 to
2023, ICIS data show, However, across the
PX-purified terephthalic acid (PTA)- polyester
value chain margins remained focused on the
upstream. That focus for profitability is
expected to continue in 2024.

Asia
ethylene sees headwinds amid curbed arbitrage,
greater competition
By Josh Quah 31-Jan-24 12:55 SINGAPORE
(ICIS)–On the surface, Asia’s ethylene (C2)
markets have looked to draw strength from
pre-Chinese New Year restocking.

Major
producer diverts acetic acid, VAM supply to
Europe from Asia
By Hwee Hwee Tan 30-Jan-24 14:19 SINGAPORE
(ICIS)–A major producer has decided to
prioritise exports of acetic acid and vinyl
acetate monomer (VAM) to Europe as the Red Sea
crisis piled delays on inbound shipments,
tightening supplies in Asia through to
February.

INSIGHT: NE Asia C3
braces for weak demand, SE Asia support likely
in short term
By Julia Tan 29-Jan-24 13:00 SINGAPORE
(ICIS)–The average weekly price for spot
propylene (C3) imports in northeast Asia
continued to climb last week on restocking
demand ahead of the Lunar New Year holidays and
on recent gains in the southeast Asian spot
markets.

Asia
naphtha bullish on supply crunch despite weak
petrochemical margins
By Li Peng Seng 29-Jan-24 09:33 SINGAPORE
(ICIS)–Asia’s naphtha prompt supplies are
expected to stay tight  as unrest at the
Red Sea and Black Sea regions will continue to
affect supply flows.

05-Feb-2024

NEW YORK (ICIS)–Global durable goods demand
should finally pick up in H2 2024 on falling
interest rates and inflation, ending the
longest such downturn in history, said the CEO
of LyondellBasell.

“We expect moderating interest rates, reduced
inflation and infrastructure-related stimulus
spending will begin to support a gradual return
to healthier demand for durable goods during
H2,” said LyondellBasell CEO Peter Vanacker on
the company’s Q4 earnings call.

Demand for durable goods lagged the overall
economy during 2022 and 2023 as markets
digested the extraordinary high levels of
consumer spending that came with pandemic-era
stimulus, he noted.

While LyondellBasell expects 2024 earnings to
improve versus 2023, the early part of the year
is off to a slow start, and not just for
durables.

“As we begin 2024, the majority of our business
are continuing to face slow demand seen in Q4
2023. But we are seeing a few early signs of
improvement,” said Vanacker.

“Our O&P (Olefins & Polyolefins) –
Americas business is seeing modest demand
improvement. In Europe, order trends are
improving from a very low level as our O&P
customers begin to pursue modest restocking,”
he added.

Restocking in Europe is being spurred by
shipping disruptions through the Red Sea and
Suez Canal.

GRADUAL EARNINGS RAMP THROUGH
2024For all of 2024,
LyondellBasell expects seasonal demand
improvement to start towards the end of Q1 and
continue through the summer and through H2.

“This has been the longest downturn that we
have seen as far as I can look back in our
history. So one would expect that – if you look
at inflation rates going down and interest
rates going down, more consumer confidence in
Europe, maybe also in China – demand would go
up,” said Vanacker.

US MOST ROBUST WHILE EUROPE, CHINA
CHALLENGEDOn a geographic basis,
the US has clearly been the most resilient
economy for LyondellBasell and recent trends
bode well for a recovery.

“The US has been quite robust. You see robust
margins on the polyethylene (PE) side and also
inflation rates are going down. And already you
see a little bit of indication there are more
houses being built and sold, and that of course
has a direct impact on demand for durable
goods,” said Vanacker.

LyondellBasell’s O&P – Americas segment saw
Q4 2023 earnings before interest, tax,
depreciation and amortization (EBITDA) rise
19.8% from Q3 on an adjusted basis to $604
million on higher volumes and margins.

In contrast, its O&P – Europe, Asia &
International (EAI) segment posted an adjusted
loss of $87 million in Q4 versus a loss of $45
million in Q3.

Low European demand is expected to persist into
2024 despite some restocking from shipping
disruptions, while China demand continues to be
slow to return.

“China is the largest market for chemicals,
exceeding North America and Europe combined. We
continue to watch closely for targeted stimulus
and other measures that could drive improved
economic growth in China,” said Vanacker.

Q1 OPERATING RATE
OUTLOOKFor Q1, LyondellBasell
expects its O&P – Americas business running
at around 80% operating rates with some planned
maintenance – down from about 85% in Q4.

“During Q1, we expect PE prices to remain firm
with modest improvements in domestic demand and
ongoing strength in export markets. We
anticipate ethane and energy costs will remain
favorable for our assets in the region,
providing some margin tailwinds,” said Ken
Lane, executive vice president, Global Olefins
& Polyolefins at LyondellBasell.

Meanwhile, its O&P – EAI business should
see operating rates of around 75% – up from
about 65% in Q4.

“As we move into 2024, we expect weak European
demand will persist with ongoing consumer
uncertainty. Nonetheless, we are seeing modest
improvements in orders as some customers begin
to restock and seek global supply as imports
moving through the Red Sea are disrupted,” said
Lane.

“Demand in China remains muted as customers
manage inventories with the approach of the
Lunar New Year amid a slow economic
environment,” he added.

Focus article by Joseph Chang

Thumbnail shows durable goods. Image by
Andy Wong/AP/Shutterstock

02-Feb-2024

Hydrogen could replace Russian gas imports
Diversification of gas supply also key by
2027
Austrian hydrogen demand forecast at 10TWh
in 2030

LONDON (ICIS)–Gas and hydrogen infrastructure
expansion is needed to diversify energy supply
in Austria, according to the managing director
of the Austrian Association for Gas and Water
(ÖVGW) Michael Mock.

Mock believes that hydrogen infrastructure
expansion will help reduce Austria’s reliance
on Russian gas, as he called for legislators to
make a clear commitment to future
infrastructure.

“A real diversification of gas supply and
acceleration of the energy transition can only
be achieved through appropriate gas and thus
hydrogen infrastructure expansions,” says Mock.

Austria imports Russian gas through its
long-term contract (LTC) with Gazprom, with the
volumes transiting through Ukraine and then
Slovakia. The country also imports gas volumes
from Germany, and exports to Italy and
Slovenia.

“A diversification of the gas supply and the
associated increase in security of supply, as
well as setting the course for a
climate-neutral energy supply of the future,
requires a strategic and hydrogen-compatible
expansion of the gas network”, said Stefan
Wagenhofer, director of TSO Gas Connect Austria
and ÖVGW vice-president.

Wagenhofer further stressed that the Hydrogen
Advisory Council (HYPA) recommended this
approach. Germany’s current model is seen as a
sensible model for Austria according to GCA’s
director.

RAG’s managing director Georg Dorfleutner
recently told ICIS that
the country’s idle gas transmission capacity
could be repurposed to accommodate hydrogen.

This comes amid pressure to end reliance on
Russian gas by 2027 in line with EU deadlines.
However, a recent ICIS analysis shows that
Austria will likely remain
reliant on Russian gas this year.
Uncertainties remain beyond 2025, despite
energy major OMV stressing that it is
prepared for a scenario of no Russian supply.

Austria’s gas demand has averaged around
90TWh/year over between 2019-2023., with a
significant portion of this demand is met
through LTC Gazprom volumes.

However, with the Ukrainian transit agreement
ending this year, these volumes are put at risk
in the future.

In the meantime, hydrogen demand is expected to
reach 10TWh by 2030, and up to 31TWh by 2050.

WAG LOOP EXPANSION

As part of the country’s coordinated
infrastructure plan, a 40km loop expansion of
an existing pipeline as well as the addition of
a compressor unit are foreseen.

The expansion will go from Oberkappel to Bad
Leonfelden. It is expected that the project
will be completed by 2027.

This would expand the entry capacity at the
Oberkappel/Überackern border between Germany
and Austria by around 30% to 28TWh/year.

“There is a market – but not so far out”, said
a trader when asked about the project. “By
then, the industry will be relocated and we
[will] need less gas here”, they added.

31-Jan-2024

HOUSTON (ICIS)–The Federal Reserve may signal
on Wednesday that it will take future interest
rate hikes off the table, setting up the
conditions needed to trigger a restocking cycle
in the chemical industry in the US  by
loosening monetary policy.

The signal from the Fed revolves around the
phrase, “In determining the extent of any
additional policy firming that may be
appropriate to return inflation to 2% over
time…”. The central bank may remove the mention
of additional firming when it announces its
decision on interest rates later on Wednesday
Chemical companies are waiting for
customers to start replenishing inventories
after suffering through what some have
described as the industry’s worst destocking
cycle ever
A restocking cycle could start in response
to sustained, higher oil prices, brought on in
part by lower interest rates. Prices for
chemicals tend to rise with those for oil, and
oil prices tend to rise with lower US interest
rates

HIGHER OIL MAY TRIGGER
RESTOCKINGIn the chemical
industry, restocking and destocking cycles tend
to follow oil prices, says Kevin Swift, ICIS
senior economist for global chemicals.

When oil prices rise, those for chemicals
typically follow. Buyers with low stocks of
chemicals would feel pressure to replenish
their inventories before prices rise any
further.

Right now, those stocks are near rock-bottom
levels. The chemical industry has just
experienced what is likely to be its longest
and deepest destocking cycles in history, Swift
said.

Comments from CEOs as well as statistics such
as inventory to sales ratios all point to a
tremendous destocking cycle.

In the case of Dow, demand for its products
is flowing directly into sales because customer
inventories are so low, said CEO Jim
Fitterling.

A sustained rally in oil prices could be the
trigger needed to start a restocking cycle.

Fitterling has noted that
conditions already exist for such a rally.
Oil production has lagged demand.

Lower US interest rates could speed up a
recovery because of their relationship with the
value of the dollar.

Lower rates tend to weaken the US dollar. Oil
is sold in dollars, so their prices tend to
rise when the dollar weakens.

A weakening US dollar, lagging oil supplies and
an economic recovery could work together to
spark a sustained rally in oil prices that
could lead to a restocking cycle in the
chemical industry.

HOW THE FED COULD SET UP LOWER
RATESThe Federal Reserve will
signal the direction of future monetary policy
later on Wednesday, when it announces its
decision on interest rates.

The central bank has raised rates to 5.25-5.5%
as part of a campaign to bring inflation down
to its target of 2%.

Inflation has been falling, so the Federal
Reserve may indicate that future hikes are no
longer under consideration.

That would point to future cuts in interest
rates.

Swift does not expect the federal funds rate to
return to the ultra-low levels that
characterized the US in the aftermath of the
2008-2009 financial crisis.

Those rates were abnormally low and close
to zero. Swift expects the federal funds rate
to return to their typical level, which was
2-2.5 points above the central bank’s inflation
target. That’s about where the members of
the Federal Reserve expect interest rates will
be by the end of 2024.

In mid-December, Fed members expected the
federal funds rate to fall by 0.75 point during
2024, bringing it to 4.5-4.75%.

The Fed would cut rates so it can engineer a
soft landing of the US economy, under which
inflation returns to its target of 2% without
causing a recession.

So far, the Federal Reserve is on track to
achieve such a soft landing, according to

the ICIS base case for US GDP.

The International Monetary Fund (IMF)
made a similar call about GDP in its update
to its World Economic Outlook (WEO).

INFLATION THREATS
REMAINThe economy is not out of
the woods yet.

New supply chain disruptions are cropping up
because of the drought in the Panama Canal, the
attacks by the Houthi at the Red Sea near the
Suez Canal, and
the rail strikes in Germany.

If these or other events drive inflation
higher, then the Fed will hold off on lowering
rates.

The chemical industry, however is likely to
have to wait before customers resume
restocking.

Insight by Al Greenwood

Thumbnail shows money. Image by ICIS.

31-Jan-2024

SAO PAULO (ICIS)–Mexico’s GDP grew 3.1% in
2023, year on year, confirming a resounding
year for manufacturing on the back of
nearshoring and services, which has fully
recovered from the pandemic, the country’s
statistical office Inegi said on Tuesday.

In Q4, GDP rose by 2.4%, compared with Q4 2022.

The petrochemicals-intensive secondary
activities outperformed overall GDP’s growth,
with output up 3.6% in 2023, year on year, as
nearshoring proved to be at full steam with
consistent announcements of foreign direct
investments (FID) into Mexico.

Quarterly growth in Q4 stood at 3.1% when
compared with Q4 2022.

As the country with the lowest unit costs of
production within the North American free trade
deal USMCA, Mexico is undergoing a
manufacturing revival as Canadian but mostly US
companies have said they will build production
facilities in Mexico.

The healthy manufacturing activity was also
shown in Mexico’s manufacturing PMI index,
which stayed in expansion territory for 11 out
of 12 months.

As the nearshoring trend has just started, some
analysts in Mexico expect 2024 GDP growth is
set to surprise on the upside again as
manufacturing keeps expanding.

Enrique Quintana, director of Mexico’s
financial daily El Financiero, said
the country’s GDP growth could end up
surprising upwards again in 2024, with
nearshoring the element that props up foreign
direct investment and creates decently-paid
jobs in the formal economy.

“Everything indicates that the momentum created
by nearshoring in gross fixed investment, which
has already achieved historical records, is set
to continue,” said Quintana.

What Inegi puts under the umbrella of tertiary
activities posted growth of 2.9% in 2023, year
on year – the tertiary sector includes most of
the services sectors such as commerce,
administration, transport, education, and
health.

Within tertiary activities, Mexico’s key
tourism industry enjoyed a full recovery in
2023 after the country finally left behind the
pandemic-induced downturn, with coastal resorts
filling up again with foreign tourists, always
a handy and home-produced source of foreign
reserves.

As a side note, foreign reserves continued to
be fueled by remittances from the large Mexican
diaspora, which grew healthily in 2023 again.
Many Mexican households still depend on
remittances, mostly sent in dollars from the
US, to make ends meet.

Fourth-quarter output in the tertiary sector,
when compared with Q4 2022, rose by 2.2%.

Primary activities – which include the
fertilizers-intensive agricultural sector as
well as livestock, fishing, and minerals
extraction – posted growth of 2.2% year on
year.

Primary activities growth in Q4 was, however,
the only which stayed practically flat compared
to Q4 2022 – output only rose 0.1%.

TWO LATAM MANUFACTURING WORLDS
APARTThe contrast with Mexico’s
industry and Brazil’s could not be more stark:
Brazil manufacturing PMI stayed 11 out of 12
months in contraction territory.

Brazil’s GDP is also expected to have risen 3%
in 2023, but it was mostly fuelled by
agriculture and its exports, and services –
manufacturing’s woes remained through the year,
and were very well represented by the
chemicals industry, where domestic
producers suffered greatly from overseas
cheaper imports.

31-Jan-2024

SINGAPORE (ICIS)–Asian petrochemicals were
mixed ahead of the Lunar New Year holidays,
with some seeing an uptrend due to cost
pressures. However, there is still concern
about demand after the regional holiday ends.

In this chemical podcast, ICIS Deputy News
Editor Pearl Bantillo shares an overview of how
Asian petrochemical markets have performed
pre-holiday.

31-Jan-2024

SINGAPORE (ICIS)–Asia’s benzene prices trended
upwards because of crude gains as well some
pre-Lunar New Year restocking. Downstream
styrene (SM) producers however, struggled with
higher costs and low demand from sectors such
as polystyrene (PS), expandable polystyrene
(EPS) and acrylonitrile-butadiene-styrene
(ABS).

In this chemical podcast, ICIS editors Angeline
Soh and Luffy Wu discuss recent market
conditions with an outlook ahead in Asia.

Benzene Feb cargoes sold out from pre-LNY
stocking up, US demand as plants shut from
winter storm
Demand for March cargoes buoyed; buyers
beyond Asia worried about tightened supply with
upcoming derivative additions in China
Asian styrene market players struggling
with high costs but low demand
Regional styrene exporters eyeing long-haul
opportunities to Europe

31-Jan-2024

LONDON (ICIS)–Evonik is expanding precipitated
silica capacity at its South Carolina, US site
by 50% to meet high demand in the region, it
said on Wednesday.

The specialty chemicals producer said it had
invested “a mid-double-digit million-euro
amount” to add a new line at the Charleston
site.  Construction is due to start in
mid-2024 before becoming operational in early
2026.

“The new line in South Carolina is satisfying
the high demand in particular from the tire
industry in North America,” Evonik said in a
statement.

In addition to being a key ingredient for
fuel-efficient tires, silica is used in other
products such as toothpaste and coatings.

The Charleston facilities are part of a network
of 18 precipitated silica production sites
globally, Evonik said in a statement, without
disclosing capacities at the site.

31-Jan-2024

SINGAPORE (ICIS)–Click here to see the
latest blog post on Asian Chemical Connections
by John Richardson: The average China
polypropylene ((PP) price spread over naphtha
feedstock costs has so far this year been just
$191/tonne, the lowest since ICIS price
assessments began in 2003.

China block copolymer and raffia-grade price
spreads between 2022 and 26 January this year
were 144% lower than their long-term average
with injection grade spreads 145% lower.

When you therefore hear people say, “The market
is recovering,” point them in the direction of
this data. There will have been no full
recovery in the Asian PP market until spreads
have rebounded by these amounts.

Growth in global PP capacity between 2024 and
2030 would have to be 45% lower than the ICIS
base case in order for global operating rates
to hit their long-term healthy average of 87%.
Based on what we see as a further big surge in
capacity in a weak global growth environment,
we are forecasting global PP operating rates of
just 76% in 2024-2030.

A spate of confirmed and reported PP shutdowns
in the Middle East and Asia – some of which are
said to be in the Middle East because of the
Red Sea crisis – are apparent in the ICIS Live
Disruption Tracker.

The tracker calculates available capacity
versus nameplate capacity. Some 64,000 tonnes
less PP capacity is available in the Middle
East and Asia in January 2024 compared with
January 2023, according to the tracker.

But the ICIS Supply & Demand Database tells
us that global PP capacity is this year
scheduled to increase by 7% over 2023, with no
less than 74% of the increase due to take place
in China. This year’s global new capacity is
forecast to total more than 7m tonnes/year.

We should avoid thinking that a little bit of
supply tightening or an unexpected surge in
demand will quickly return petrochemical
markets to their Old Normal. As the ICIS data
on PP confirms, this is not a realistic
prospect in 2024 and very probably in 2025 as
well.

As the second chart in today’s post summarises,
major secular shifts are taking place in global
petrochemical markets. New ways of navigating
short-term markets are needed. New long-term
plans are also required.

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.

31-Jan-2024