Customer Logins

Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.

Customer Logins

Chemical surpluses create opportunities – and costs

25 February 2020 Chuck Carr

Chemical demand continues to be robust across most sectors, with growth rates at gross domestic product (GDP) or multiples of GDP around the globe. Manufacturers continue to develop new products using plastics and other chemically derived materials, while growth in existing products remains strong in developing markets with a growing middle class. This robust chemical demand growth must be supplied by new chemical production investments. These investments can be located where there is strong demand growth, where ample low-cost feedstocks are available (such as North America with ethane from shale gas), or where capital cost advantages exist (such as China, where building costs can be 60% of US costs).

While these crude-to-chemicals investments are a big part of the aromatics overbuild, ethylene investments into traditional naphtha crackers are forecast to move most chemical and derivative chains into a supply surplus environment over the next few years. Outside of North America, companies have been holding back on ethylene investments as North American investments in shale gas ethane crackers and ethylene derivatives accelerated. However, the pace of these investments has been insufficient to fully supply the global market demand growth. Thus, margins moved to levels that support new China naphtha cracker investments. As these assets start production, margins in nearly all the chemical chains will be under pressure. Unlike ethane crackers that yield minimal co-products, naphtha crackers yield large quantities of co-products.

One area where investment is limited compared to annual demand growth rates is the chlor-alkali chemical chain. The margins in this chemical chain are dependent on many downstream derivatives on both the chlorine and caustic side of the equation. The main derivative for chlorine, polyvinyl chloride (PVC), makes up only about one-third of total chlorine demand. Compare that to the main derivatives for ethylene and propylene, where polyethylene (PE) and polypropylene (PP) make up 60% to 70% of total demand. Chlorine demand is more closely tied to construction, where demand growth has been relatively slow since the global recession a decade ago. Caustic soda demand is even more diverse, with the largest segments being in the alumina and pulp and paper sectors. Together these sectors make up only about 25% of the total global caustic soda demand. The chlor-alkali chemical chain continues to mop up excess capacity. While there are new chlor-alkali-related projects under construction, margins that would catalyze an investment cycle are not forecast to appear until the mid-2020s. Figure 2 shows the trend in chlor-alkali operating rates and cycles over the last two decades.

As mentioned earlier, sustainability is at the forefront of discussion and action from consumers and governments. Single-use plastics bans, mandated recycling rates, carbon-neutral aspirations, and new chemical recycling technologies are just a few ways that sustainability will shape future demand-growth and investment decisions. Looking at the entire supply chain picture, expected low oil and natural gas prices will make these sustainability decisions come at a cost to consumers. Just developing the necessary infrastructure to collect, separate, reprocess, and reuse plastics will require a large capital outlay, which must compete with investments to produce virgin rawmaterials. Technology and innovation will likely have a major impact on how these investment decisions are made. IHS Markit is well-positioned to look across not only all the major chemical chains, but also at how the energy market and any sustainability initiatives impact the future.

Global chemical markets are experiencing greater uncertainty than ever before. Hindsight is 20/20. Improve your strategic vision for 2020 and beyond with IHS Markit Chemical World Analysis.

Posted 25 February 2020 by Chuck Carr, Vice President Refinery Petrochemical Integration



Follow Us

{"items" : [ {"name":"share","enabled":true,"desc":"<strong>Share</strong>","mobdesc":"Share","options":[ {"name":"facebook","url":"","enabled":true},{"name":"twitter","url":"","enabled":true},{"name":"linkedin","url":"","enabled":true},{"name":"email","url":"?subject=Chemical surpluses create opportunities – and costs | IHS Markit &","enabled":true},{"name":"whatsapp","url":"","enabled":true}]}, {"name":"rtt","enabled":true,"mobdesc":"Top"} ]}
Filter Sort