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IHS Markit webinar: Opportunities and risks for the chemical industry in a post-pandemic world

October 7, 2020
Energy & Chemical Value Chain

IHS Markit held an executive briefing on Tuesday in a virtual format on the occasion of the European Petrochemical Association (EPCA) annual meeting. The webinar examined opportunities and risks for the chemical industry in the post-pandemic world.

Mark Eramo, global vice president/oil markets, midstream, downstream, chemicals at IHS Markit, set the scene describing COVID-19 as “one of the most impactful events in modern history” that had caused a “head-on collision between the personal and business world.” Planning a path forward “has never been more difficult, given the unprecedented level of complexity,” Eramo said.

Dan Evans, vice president and global head of refining and marketing at IHS Markit, highlighted the pandemic’s dramatic impact on the upstream oil and downstream refining sectors, including a worsening oversupply of petroleum products. He said that demand for refined products in 2025 will be at least 4 million b/d (MMb/d) lower than pre-COVID expectations, but that a lot of new refining capacity is due to come onstream in the intervening period.

Refining margins in 2022–23 will still be as weak if not worse than this year, according to Evans. As a result, at least 3 MMb/d of refining capacity will likely be closed worldwide in the next 3–5 years, more than half this figure in Europe, he said. “We have entered a new era of overcapacity in the refining industry,” Evans said.

Refining companies will seek greater integration with petrochemical production to address oversupply, Evans said. But this strategy has risks as well as opportunities. “The risk is that too many refiners do it, which could lead to overcapacity in the petrochemical space,” he said.

IHS Markit forecasts that petrochemical yields from refineries could increase from 25–40% to 40–80% as integration increases.

Duncan Clark, vice president/aromatics and fibers at IHS Markit, provided an analysis of base chemical scenarios, covering six key products: ethylene, propylene, methanol, chlorine, benzene, and para-xylene. Clark cited an IHS Markit estimate that worldwide demand for base chemicals will be lower by 8 million metric tons (MMt) in 2020 than pre-pandemic forecasts. “We’re losing one and a half years of demand growth as a result of this pandemic,” Clark said.

Base chemicals were already headed for overcapacity before COVID-19 due to numerous capacity additions, according to IHS Markit. The pandemic “couldn’t have come at a worse time because these products were already facing overcapacity,” Clark said. “These markets will be under pressure for the next five years.”

IHS Markit is expecting “a poorer base chemicals performance in Western Europe than in the rest of the world” this year, largely linked to an anticipated slump in regional GDP, which has caused a significant downturn in demand for durables, with the automotive sector particularly hard it, Clark said.

IHS Markit estimates that worldwide ethylene demand will increase 0.9% in 2020 but decline 4.4% in Western Europe. It expects worldwide methanol demand to decline 4.4% this year but drop 15.0% in Western Europe. And it predicts benzene demand will decrease 4.7% worldwide in 2020 but fall 10.2% in Western Europe. These figures contrast with average annual growth of 4% for base chemicals worldwide in the last 10 years.

Adam Bland, executive director/solvents and surfactants at IHS Markit, highlighted one product that has clearly benefited from the pandemic, isopropyl alcohol (IPA), which is used to make cleaning and disinfectant products, including hand sanitizer, and as a processing solvent in the production of pharmaceuticals. “IPA is at the forefront of the battle with COVID-19,” said Bland.

IHS Markit forecasts a 12% worldwide increase in IPA demand in 2020. As a result, about 250,000 metric tons of additional IPA will be used in medical markets this year.

Bland expects “a significant pullback in IPA demand in 2021,” assuming a recovery from the pandemic next year. However, he anticipates that widespread use of hand sanitizers will continue. As a result, there will be high demand for IPA “for many years to come,” Bland said.

The overall economy will be the main indicator of the specialty chemical industry’s recovery from the crisis, according to Bland. IHS Markit forecasts that consumption of specialties will increase at a compound annual growth rate (CAGR) of 3.3% in 2022–25 with the Chinese specialties market achieving a CAGR of 5% but Western Europe expanding at a CAGR of just 1–2%.

Specialties, with their many applications and strong innovation, can also help the recovery of the world economy, Bland says. “The ‘new normal’ will present opportunities for growth,” he said. “Specialty chemicals will allow us to achieve more for less and, with foresight and innovation, we can enter a golden age of specialty chemicals.”

Mukta Sharma, managing director/chemical consulting at IHS Markit, noted that worldwide chemical demand is forecast to decline in 2020 for the first time since 2008. Growth will average just more than 3%/year in the coming years, she said.

Sharma also highlighted the impending overcapacity in base chemicals. More than 140 MMt of annual capacity is set to be added in the next five years, from projects that had been sanctioned before the pandemic, she said. However, demand growth is forecast to be much lower than the capacity growth, at less than 100 MMt over the same period, according to IHS Markit. “This adds up to a rather prolonged period of lower earnings overall for the chemical industry,” Sharma said.

The situation during this challenging period will be complicated by the need to deal with likely price volatility and manage the energy transition and shift to greater circularity, she said. Circularity remains “high on the industry agenda,” Sharma said.

The development of new plastics recycling technologies, particularly chemical recycling, is essential to establish a circular economy. “There are obstacles to overcome in terms of commercialization and scale, but chemical recycling would provide an elegant solution,” Sharma said.

By: Ian Young

Source: Chemical Week

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