Market Updates

Hard Times Ahead for Chemicals & Petrochemicals

October, 2018

The 52nd annual meeting of European Petrochemical Association (EPCA), held in Vienna, was dedicated to low carbon versatile solutions for petrochemicals industry. Leaders from all over the world’s premier organizations participated and attended. The delegates presented their views and shared their insights all to summarize the situation is not very rosy for chemical & petrochemical industry. There are also few articles with journalists’ discussions on the sidelines, and most of the leaders are embracing or expecting hard times for global chemical. While people do agree to the fact that this year has been good for chemical industry with demand coming from developed economies, increasing crude oil prices, and new capacity additions, yet leaders are cautious about the coming few years. Some of the reasons for this can be listed below.

  • Hard BREXIT - There have been many rounds of discussions related to BREXIT deal and this all has produced no results from negotiations. The big industry participants have started preparing for alternatives in case of different outcomes. However, the market is full of relatively smaller players who don’t have pockets deep enough to prepare for hard exit by the UK. The supply channels are expected to be disrupted upon separation while the dealers don’t know what to expect in near future. The big corporates would also have to suffer, although the extent of impact can be argued, as absence or delay of even smallest component/ material can impact the whole manufacturing plants productivity in any uncertain and moving environment.

  • Growing Protectionism - The global markets have recently seen growing protectionism by the developed countries where they want to protect their domestic industries via limiting the market access to the outside world across trade categories. The very idea of globalization is being questioned where biggest markets in the world are locking horns for trade implications slapping tariff to each other. This uncertainty and increasing protectionism is hampering the manufacturers’ profitability and potential consumer penetration.

  • Growing Capacities & Trade War - China has long been hot destination for new capacity installation. While it was attracting the companies for cheap labor cost earlier, now the booming domestic market is luring the investment to the country. Parallelly, there have been multiple polymer and chemical capacity increase for polymers in the US to reap the benefits from Shale Gas. The two powerhouses of the global market are adding export-oriented capacities pushing down the global operating rates and hence impacting the profitability and potential success for manufacturers.

  • Environmental Issues & Sustainability - The chemical production capacities earlier this year faced stiff actions by authorities trying to limit the greenhouse effect and improve environmental health in China. May factories were shut-off while remaining had to incur extra cost of improved disposable systems to keep operations running. While all the industries are moving towards carbon (dioxide) free economy, the chemical industry is still far from implementing the technologies to reduce carbon dioxide emission. Global leaders are openly accepting that the industry shall be largest consumer of energy resources in near future while it may take half century for chemical industry to become carbon dioxide free.

These are just a few areas which are on everyone’s list of concerns related to chemical industry, while each of the individual market has its own parameters to be concerned about. The overall market shifts shall be beneficial for the consumers or the manufacturers or the both, only time will tell. We all can hope that the new uncertainties do not emerge. and global markets stabilize the dynamics while reaching their growth.

– Ankur Kalra,
Manager – Chemicals and Materials,
Infoholic Research