19 November, 2024 15:42:24 IST 
The global chemical industry is seeing an overall weakening of demand brought about by a combination of factors – slowing economic growth in the major economies; high inflation rates; and high energy costs, especially in Europe.The excess supply for base chemicals –used to make plastics and other chemicals that end up in nearly every product we purchase – will persist for some time, and rebalancing will require both significant demand growth, which has been elusive of late and supply constraints. To cite just one example, between 2024 and 2028, about 42-mtpa of incremental ethylene capacity is expected, while demand is projected to increase by only 30-mt cumulatively during the same period. This supply surge, coming on top of existing oversupply, is leading to a significant decline in operating rates and margins.
On a regional basis, the size of the chemical markets in Northeast Asia, including China, is more or less equal to the rest of the world combined, and will continue to be a significant driver of global demand. While demand in this region grew at a CAGR of about 7% in the last two decades, it has now slowed down to around GDP levels, largely due to a decline in consumption in China, and this is expected to continue to 2040.
The net result is a surfeit of capacity in most value chains, pulling down operating rates & margins, forcing rationalisations and closures, particularly of high-cost assets in Europe and Japan, though no geography has been spared. No sector also seems to be immune, and the following represents just a few of the measures announced in the last 3-4 months.
Petrochemical capacity rationalisation
In the Middle East, Saudi Aramco, the oil-to-petrochemicals giant, has cancelled plans to build a refinery and chemicals project in the Kingdom, and is reviewing three planned chemical facilities in Jubail and Yanbu.Aramco’spetrochemical unit, Sabic,for one, will not go ahead with the planned 400,000 barrel-a-day facility at Ras-Al-Khair, and a proposal to move the project to Jubail has also reportedly been shelved.At the same time, Aramco seems to be recalibrating its spending on chemicals to China, where it is pursuing a series of deals that would also guarantee long-term demand for Saudi crude. Last year, it closed a $3.4-bn deal for a stake in Rongsheng Petrochemical and is presently in talks to buy a 10% stake in Hengli Petrochemical, as well as with two other Chinese companies.
Though Aramco has stated that South Korea and India remain on its investment radar, not much has happened here. The deal to pick up a stake in the oil-to-chemicals business of Reliance Industries Ltd. has fallen apart, as have plans to pick up a stake in the Ratnagiri refinery being set up by Indian public sector oil companies in a joint venture (mired in State politics, the project has gotten nowhere).
In Thailand, Siam Cement Group (SCG), the country’s largest cement maker, has suspended operations at its Long Son Petrochemicals complex in Vietnam.The suspension, slated for at least six months, began mid-October, just two weeks after a 74-ktpa plant for high density polyethylene (HDPE) – small by global standards – commenced commercial operations based on ethylene from a naphtha cracker.Resumption will hinge on a recovery in margins, which is not likely any time soon, and involve a feedstock switch to cheaper (imported) ethane.
In Eastern Europe, Polish oil and gas company, Orlen, said its olefins project will not generate “positive cashflow in future” as it again wrote down the value of the investment (about $228-mn) started by the group’s former management.The project has already seen other investment write-downs and the company’s senior management has called it a “trap”,adding tough choices will need to be made between closing it (and paying penalties), optimising the investment, or continuing operations.
Speciality polymers
American chemicals giant, Dow, announced a few months ago that it is planning to carry out a strategic review of some of its assets in Europe primarily in its polyurethanes (PU) business, due to weak demand recovery and the tough regulatory environment in Europe. It expects to complete the review next year.The businessmakes PU raw materials such as methylene diphenyl diisocyanate (MDI), propylene oxide, and polyether polyols, and had annual sales of roughly $2.9-bn in 2023.
Staying with PU, German speciality chemicals company, Lanxess, has inked a contract to sell its urethane systems business, comprising five manufacturing sites as well as application labs in the US, Europe and China, to Japan’s Ube Corporation. This is the last polymer remaining in the portfolio of Lanxess, which was spun off from Bayer, and represents the laststep in turning it into a pure-play speciality chemicals company
The global styrenics business has also seen significant rationalisation. UK’s Ineos, has, for one,decided to permanently close ABS (acrylonitrile butadiene styrene resin) production in Addyston, Ohio (USA), and will begin decommissioning in the second quarter of 2025.The company cited the hyper-competitive environment for the speciality-turned-commodity thermoplastic, following the overbuild in Asia (read China), and the substantial investment needed to continue operations with profitable cost competitiveness.
Ineos Styrolution has also confirmed it will not restart its styrene monomer production site in Sarnia, Ontario (Canada), which has been shut since April 2024. In June the company shared its decision to permanently close the Sarnia site by June2026 (operations were shut in April 2024 due to regulatory orders).
US-based Trinseo has also decided to stop polycarbonate (PC) resin production at Stade (Germany) by January 2025, and purchase its requirement of resin (for PC compounds)from external suppliers.
Reorganisation in Japan
Declining and ageing population, and weak economic growth has resulted in virtually no demand growth for basic petrochemicals in Japan, and industry watchers recognise that the country has more crackers than needed (and sub-optimally sized ones at that). A downsizing has been ongoing for some time now, but more seem to be needed.
Just recently, Idemitsu Kosan and Mitsui Chemicals moved ahead on consolidation of their Chiba ethylene complexes into a single unit at Mitsui’s current facility and expect to complete the consolidation by fiscal 2027.
Sumitomo Chemical, for another, has decided to suspend operations of a portion of its low-density polyethylene (LDPE) manufacturing facilities at its Chiba Works by the end of fiscal 2024, slashing its LDPE capacity of 20-ktpa. It has also closed two of three production lines for methyl methacrylate (MMA) and polymethyl methacrylate (PMMA) at its Singapore subsidiary in September 2024. This will result in an approximately 80% reduction in MMA capacity and an approximately 70% reduction in PMMA capacity at the location.Following these measures, Sumitomo Chemical will focus on speciality and high-value-added PMMA products.At a broader level, the company also announced a business reorganisation effective October 1, 2024, under which the focus will be on four new sectors – food, ICT, healthcare, and the environment.
Speciality chemicals
Even the business of speciality chemicals and materials has not been immune to the rationalisation.
SI Group, the US-based manufacturer, has announced plans to close its alkylphenol facility in Singapore in the second half of 2025. The company cited the substantial changes in the antioxidant value chain in the region in recent years, paired with high costs in Singapore, as reasons.
Honeywell, which has a diversified speciality materials business with leading positions across fluorine products, electronic materials, industrial grade fibres, and healthcare packaging solutions, has announced plans to spin off its Advanced Materials Businessinto an independent, US publicly traded company, by the end of 2025 or early 2026.
American coatings major, PPG, has announced the sale of its architectural coatings business in the US and Canada to buyout firm American Industrial Partners for about $550-mn, while staying focussed on Latin America, Europe and Asia Pacific, where it holds strong positions in a number of key countries. In August 2024, PPG said it would sell its silica products business, including precipitated silica manufacturing facilities in Lake Charles, Louisiana, and Delfzijl, The Netherlands to Qemetica, a Poland-based manufacturer of soda ash, silicates and other speciality chemicals, for $310-mn. The business represented 1-2% of PPG’s total net sales in 2023, and the sale is expected to close in the last quarter of 2024.
In another development, AkzoNobel said it plans to cut about 2,000 jobs globally (more than 5% of its workforce) by the end of 2025, as part of its efforts to reduce costs and enhance efficiencies. The owner of thefamedDulux brand also plans to exit its India architectural paints business after 70 years, amidst increasing competition in the domestic market with the entry of two new players with considerable financial muscle.
How far down the road is the recovery?
There is consensus amongst global chemical industry leaders that the industry is in a long-term and structural slowdown, with China the hub of the crises, though not the only determinant. There is less agreement on how far the recovery is ahead – optimists put it at three years, pessimists as much as nine. None of the two views offer any comfort!
India is expected to be amongst the fastest growing markets for chemicals, in general, and petrochemicals, in particular, but producers here will not be immune to the pricing pressures that the global markets will unleash.
