Fueling the future of Chemicals in the Middle East

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The Middle East is witnessing a wave of low-carbon projects. The chemical and energy companies in the region, are making a hard drive to meet their government-prescribed net-zero targets by 2050. Learn more about the petrodollar funded projects - including ammonia, green and blue hydrogen and their initiatives towards energy transition in this S&P Global Commodity Insights piece here.



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European petrochemical margins face grim outlook amid overcapacity

European petrochemical makers are expected to face more weak steam cracker margins in the months to come as they grapple with excess production capacity and a mixed manufacturing outlook. Europe's oversupply of steam cracking capacity is reflected in average operating rates, which for ethylene are currently at around 70%-75% when typically the industry would expect these to be well into the 80%-90% range and above, said Andy Orszynski, Chemicals Director at S&P Global Commodity Insights in an interview on May 20. Platts, part of Commodity Insights, assessed the Northwest European Cracker spot margin, a measure of profitability for ethylene-producing steam crackers, at $124.79/mt May 17 and a 2024 average of $112.96/mt to date. This is against a five-year average of $324.17/mt. Ethylene is a key building block for a number of petrochemicals. "The ethylene industry has overbuilt itself," said Tony Potter, Global Vice President of Chemicals at S&P Global, in a presentation March 20 at the World Petrochemical Conference in Houston. "Naphtha cracker margins in Europe and Asia will be below reinvestment levels in 2024 and 2025." Cracker margins have failed to recover in the wake of the coronavirus pandemic. They flipped negative in August 2022 and from April 2019 until that point had averaged $494.94/mt, Commodity Insights data showed. Industry data shows almost flat production growth in 2024. The European chemical industry's output grew slightly in the first two months of the year, up 0.4% year over year, according to the most recent Chemical Monthly Report of the European Chemical Industry Council (Cefic). This growth in volumes could "probably linked to short-term restocking" and should not be perceived as "good start of stabilized demand and ongoing recovery," Cefic said. "The chemical industry in Europe is under cost and demand pressures, and certainly more than in the other competing countries in the world. Chemicals production in Europe faces more structural challenges rather than business cycle issues. The latest announcements on closure of crackers units in Europe underpin this," Cefic said. A slew of closures in Europe has been announced for 2023 and 2024. This includes 2.785 million mt/year of aromatics capacity, 1.825 million mt/year of polymers capacity and 1.1 million mt/year of olefins capacity. An anemic industrial production outlook does not auger well for petrochemical margins in 2024. Industrial production output in the Eurozone is expected to show no growth in 2024, according to analysts at S&P Global Market Intelligence, but 2025 looks more bullish, when the Eurozone's industrial production output is forecast to rebound with a growth rate of 2.7%. This comes as global industrial production is projected to increase by 1.9% in 2024 and increase by 2.8% in 2025, a fourfold increase on growth in 2023, the analysts said. More, greener capacity clouds margins outlook The chemical industry is implementing circa 1 million mt/year of ethylene capacity cuts in 2024 via announcements from SABIC and ExxonMobil, but there is up to 2 million mt/year of new ethylene capacity due to start coming online as of 2027-2028 from new crackers being built now by Ineos in Belgium and PKN in Poland, which will more than cancel out these cuts. The Ineos project is the first new cracker in Europe in 25 years at Antwerp, with capacity for 1.45 million mt/year of ethylene and will be the largest olefins unit in Europe. The project resumed construction earlier this year after be stalled because of a campaign by environmentalists, but Ineos has not changed the plant's announced completion date of 2026. The carbon emissions at the new ethane cracker will be three times less than those at an average European cracking facility and less than half the emissions of the top 10% best-performing crackers in Europe, according to Ineos. The reductions in capacity announced by SABIC and ExxonMobil represent about a 4% decrease in current ethylene capacity but the 2 million mt of new additions from PKN in Poland and Ineos in Belgium mean an increase of about 10%, according to Commodity Insights data. "We do not expect these projects to be shelved, and they sound like they are progressing well, although timelines can always change," Orszynski said. "This means the market will probably have to see this volume - and more - leave the market elsewhere in Europe," he added. Multinationals like ExxonMobil, SABIC and Dow could use their cost-advantaged units outside Europe to import and maintain their market share on the continent. The already high living standards and low population growth in Europe will limit the growth, said Michael Liesfeldt, Director of Olefins and Derivatives for Middle East and Africa at S&P Global Commodity Insights . Single facility operators are the more likely candidates to try and hold onto their position, Orszyinski said. Industry concerns This is ringing alarm bells in the industry. Eighty-five national and European packaging industry associations have signed a manifesto calling for the EU and national leaders to "relaunch competitiveness" for their products, the European Organization for Packaging and Environment said April 15. In similar terms, Ineos Chairman Jim Ratcliffe has warned that the European petrochemical industry is sleepwalking towards offshoring its industry, jobs, investment and emissions.


China turns PP net exporter for first time in March amid capacity expansion

China's commitment to self-sufficiency in the petrochemicals industry has led the polypropylene market to witness a new wave of capacity expansions since 2019, industry sources said, but receding domestic demand amid a subdued macroeconomic climate is pushing Chinese suppliers to seek alternative homes for its surplus cargoes. In a historic first, China flipped into a net PP exporter in March, marking the highest outflows on record, based on customs data back to 2012. In March, PP outflows surged by 87.6% month on month and 88.6% on the year to 312,400 mt, outpacing inflows of 295,441 mt, up 28.45% on the month but down 10.58% year on year, according to latest data from the China Customs Statistics Information Center. "This milestone of China's PP exports surpassing its imports in March 2024 is a significant achievement toward its strategic goal of enhancing self-sufficiency," said Feng Shaohua, Executive Director of Polymers & Plastics at S&P Global Commodity Insights. Feng noted that China has significantly expanded its PP capacity over the last five years, with virgin PP capacity reaching 47 million mt/year, while consumption is estimated to reach 39 million mt/year in 2024. The rise in China's production capacity over the years has worked to weigh on domestic prices. On an ex-works basis, the Platts-assessed PP Raffia Chinese domestic prices have averaged Yuan 7,422.08/mt in the year through May 9, losing 21.6% or Yuan 2,044.77/mt from the same period in 2018, Commodity Insights data showed. Chinese PP heads south The rise in China's PP exports in recent years has undoubtedly shifted market and pricing dynamics, particularly in the Southeast Asia region, sources said. "With new capacities coming online, Chinese PP producers will explore more export markets, particularly in developing countries geographically close to China, price-sensitive markets, or those with free-trade agreements with China," Feng said. China's PP exports to Vietnam surged by 145.7% on the month and 127.8% on the year to 49,357 mt in March, customs data showed. Vietnam emerged as China's largest PP trading partner in March, accounting for approximately 15% of all exports in the month, followed by Brazil and Bangladesh, which took 29,039 mt and 24,519 mt, respectively, the data showed. Elsewhere in the region, Chinese PP cargo exports to Thailand also grew by 74.8% month on month and 27.2% year on year in March to 15,235 mt. "Before July 2023, we did not see as much Chinese PP in the local Thai market, but now due to their large capacity and economies of scale, we're seeing more and cheaper cargo from Chinese factories enter our customers' warehouses," a Thai producer said. Market sources said that the influx of competitively priced Chinese materials has lengthened the market, exerting downward pressure on prices. Platts assessed CFR Southeast Asia PP raffia and injection prices, down by $35/mt on the year at $980/mt as of May 8, Commodity Insights data showed. China retains dual position despite new PDH capacities Although China has emerged to be a regional exporter in recent years, Feng noted that the country will continue to import PP, especially impact copolymers, in spite of expectations of fresh PP supplies to emerge on the back of expansions in the upstream feedstock propylene arena. A detailed analysis of the customs data by Commodity Insights revealed that PP exports were predominantly driven by PP homopolymer -- commonly traded in raffia or injection grades -- due to its relatively low cost and ease of production. PP is typically produced through naphtha steam crackers or propane dehydrogenation units. Meanwhile, PP copolymer, particularly the impact copolymer grade, accounted for 81,418 mt, or 27.5%, of the total PP imports in March 2024. Although PP copolymer is consumed in smaller quantities -- as it is expensive and challenging to produce -- its application in more demanding uses drives China's PP imports. According to Commodity Insights data, in China, approximately eight new propane dehydrogenation (PDH) units came online in 2023, contributing to an additional 4.8 million mt/year of propylene production capacity and requiring up to 5.76 million mt/year of propane feedstock at full capacity. Approximately eight more PDH plants, with a total propylene capacity of 4.46 million-4.86 million mt, are scheduled to commence operations in 2024, with five more plants announced for startup in 2025.


WPC: Energy transition faces discord amid geopolitical pressures

Geopolitical pressures — including rising resource nationalism and a year in which over 50% of countries will be having elections — as well as inflationary pressures have sent energy transition progress into “discord.” A specialty chemicals panel session held March 19 at the World Petrochemical Conference by S&P Global in Houston, Texas, tracked the challenges and opportunities of the energy transition for the industry. Speaking at the session, Roman Kramarchuk, head of climate markets and policy analytics at S&P Global Commodity Insights, said that if the short-term scenario continues, global temperatures could rise 2.4 degrees Celsius by 2100, far above the Paris Agreement’s goal of a 1.4-degree increase. “Over the past few years, we’ve certainly been trending more towards our ‘discord’ scenario,” Kramarchuk said. “We’re trending toward a longer runway for fossil fuels and less [greenhouse gas (GHG)] emission reductions. This is a case of less GDP growth, less trade and less technology transfer.” Since 1990, world GHG emissions have grown 45%, with mainland China, India and the Middle East representing the biggest increases in emissions, at 304%, 241% and 181%, respectively. Over the last 25 years, the Commonwealth of Independent States and the EU have cut their emissions the most, with decreases of 39% and 31%, respectively. The US has cut emissions 1% since 1990. Of S&P Global Commodity Insights’ three energy and climate scenarios, only one, “green rules,” has global temperatures near the Paris Agreement’s 1.5-degree goa, with an expected increase of 1.7-degrees Celsius by 2100l. The “green rules” scenario, however, assumes more technology transfer, cooperation and policy-driven outcomes than is currently happening. “2030 is not that far away,” Kramarchuk said, “and when you think about what the energy transition will take, solar panels can be constructed fast, but anything beyond that — like an onshore or offshore wind plant or a nuclear unit — we’re getting into lead times of 5, 10, or 20 years.” While the US Inflation Reduction Act has helped speed these transformational energy products along, there are still a lot of slowdowns in permitting, especially in Europe. “We joke that there needs to be a ‘Complexity Reduction Act’ in Europe to move things forward,” Kramarchuk said. Harald Schwager, deputy chairman of Evonik Industries AG’s executive board, added that companies are stuck in a hard place. Evonik has signed power purchase agreements (PPAs) to be powered fully by renewable energy by 2030. “The question will be, will production capacity be hampered by the regulatory process and will we have sufficient infrastructure in place to transport enough renewable power for site demand by then,” Schwager said. Distant peaks Commodity Insights’ energy and climate base case pegs the peak years for coal, oil and gas demand to be 2022, around 2030 and 2040, respectively. “When there is a surprise need for energy,” Kramarchuk said, pointing toward the COVID-19 pandemic and a drought in China, which caused a boost in coal usage, “fossil fuels fill that need.” However, “there’s more investment in renewable capacity than we’re seeing in upstream oil and gas,” Kramarchuk said. Under all scenarios, renewable electricity will be the lion’s share of newly generated energy sourcing. Rebecca Liebert, president and CEO of Lubrizol Corp., said that it is the duty of specialty chemical producers to be agile and proactive in bringing innovative and more sustainable products to market. “Political and technical factors are all things we must account for in our bring-to-market timelines. And we get it right a lot of times, but we get it wrong some of the time. Sometimes you get to market before the market is ready for your product. And I think that’s great, to have a solution on the shelf as the market comes along.” Schwager agreed: “In the specialty chemical industry, we have more good ideas than we have money. And there’s no regret on moves for improved efficiency.” While there has been little movement on target setting and market-based mechanisms for growing renewable energy, COP28’s first global stocktake committee called for “countries to contribute to triple global renewable energy capacity and double global energy efficiency by 2030.” “Even though we are heading for the discord path right now, with all the technology solutions and innovation pushes, we’ll be shooting up ahead towards the ‘green rules’ scenario in the long-term,” Kramarchuk concluded. This article was first published in chemweek.com .


BASF's Finnish pCAM plant start delayed due to permit appeals

Two NGOs appealing against permits Initial plan was to start end of 2023 BASF is facing a delay of the operational start of its newly built precursor cathode active materials (pCAM) plant in Finland due to two non-governmental organizations (NGOs) appealing against already-granted permits, a spokesperson for the German petrochemicals company confirmed to S&P Global Commodity Insights Feb. 27. BASF initially aimed to start commercial production at the Harjavalta plant at the end of last year. “The necessary permit to operate this plant has been granted last year by the relevant authorities,” the spokesperson said. “However, two NGOs have filed an appeal against the already granted permit. Next steps and timing will depend on the furtherance of the judicial process before the Vaasa Administrative Court,” said the spokesperson. The pCAM plant will use renewable energy resources, including hydro, wind and biomass-based power and will be supplied with nickel and cobalt from Nornickel’s adjacent refinery. The plant is part of BASF’s plan to supply the battery industry and subsequently automotive industry with lower carbon emission cathode active material. Platts, part of S&P Global Commodity Insights, assessed cobalt metal in-warehouse Rotterdam at $15/lb on Feb. 26, stable from the previous assessment Feb. 23, while the nickel-cobalt black mass EXW Europe payables was at 54% Feb. 26, also stable.