The petrochemical industry has proven to be remarkably resilient throughout the previous decades and has weathered many unpredicted and chaotic headwinds. What the industry has learnt through each boom-and-bust cycle is how to hedge against risk and plan for the future. In addition, with each crisis is opportunity, and of course casualties, but as the old adage says, “survival of the fittest”. At the start of 2020 the onset of the first truly global pandemic in 100 years set in motion a series of events that shook the very foundations of all that we held to be true. The lessons learned from the past were no match for the challenges that lay ahead and nobody was ready for the scale and breadth of the impact the pandemic would have on every individual, city and country in the world; no industry or person was unaffected. Petrochemicals are woven into the very fabric of our lives and the sudden stop in every facet of our existence was felt across the entire value chain in every region. And thus, began what many would term “The great reset”. While global travel was effectively stopped and the working world was confined to their home offices, the petrochemical world began to shift.

By mid-2020 the pandemic was in full swing with lockdowns the order of the day in Europe, the America’s, Africa and the Indian Sub-continent. In China, where lockdowns were implemented earlier, they were ahead of the curve and the sands began to rapidly shift. Orders for finished goods began to flood in from all corners of the globe and the factory of the world moved into high gear. Within the space of a few months Asian petrochemical margins moved from record lows to levels that were scarcely believable. And what is better than making money? Well, making more money of course! The huge demand spike for petrochemicals prompted a wave of capacity announcements as producers sought to capitalize on their extraordinarily high profitability.

During the remainder of 2020 and into 2021 the world developed an insatiable desire for consumer goods, electronics and all manner of products that were used in their home offices, or were perhaps simply unavailable during the lockdowns. This in turn resulted in a spectacular return to full force of a petrochemical industry which had suffered so much in early 2020. Indeed, many companies were posting record profits in 2021 and despite the ongoing supply chain issues and new COVID variants, the tightness through the value chains had created more opportunities and gains. Governments stepped in to offer stimulus packages, vaccines were being rolled out and the future looked bright.

 

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The road to recovery was never going to be straightforward, or easy, but the energy crisis that ensued because of the invasion of Ukraine in February this year blindsided almost everyone. The result of the invasion was immediate and Brent crude prices moved up substantially to average $119 per barrel in March, up from the yearly average of $71 per barrel in 2021. Crucially, it set in motion a series events that upended the petrochemicals markets. In Europe energy policy that was nearly two decades in the making was unpicked in a matter of weeks. The reliance on Russian energy imports was seen as undesirable and sanctions were imposed across a broad range commodities. Crucially gas was not on the list, however political manoeuvring by the European Union and Russia has seen supplies since dry up. The United States was not unaffected either and the rapid shift upwards in energy costs sent consumer inflation soaring, while more recently the Federal reserve has raised interest rates to combat the ascent. It has been a similar story in Europe with inflation now hitting double digits and governments scrambling to implement subsidies to consumers and industry alike to shield them from the spiralling cost of living.

What does all this mean for the petrochemical industry today, and for the future? In Asia the huge investments made in petrochemical capacities at the start of the pandemic have been coming on-stream during the course of 2022, and this is at a time where demand in Asia is dampened due to the zero-tolerance COVID policy in China, as well as weaker demand in the west for finished goods. Europe is grappling with a demand trough at a time when energy prices are peaking, particularly gas, and downstream demand is reaching low levels that were last seen during the great economic crash of 2008. In the United States industry is also cutting rates as export opportunities have dwindled and domestic demand is also waning. In a sign of the times Dow Chemical recently announced that logistical constraints and demand losses will result in a 15% reduction in nameplate operating rates for polyethylene assets in the United States and Europe. The complex web of inter-regional dependencies that link the global petrochemical industry together have unravelled over the last 2 years, reformed, reshaped and we are now really starting the feel the full force of the truly remarkable events that have altered our world.

The Asian Chemical Forum will bring together experts, thought leaders and the titans of the chemical industry together in one room for the first time in over 3 years. As we head into 2023 with more questions than answers its now more crucial than ever to get insight from the experts you can trust at Chemical Market Analytics. We will take a look at petrochemicals across the value chain spanning olefins, aromatics, fibers and feedstocks, as well as taking a deep dive into acrylonitrile markets. We already know what happened yesterday, more importantly we want to know what the future may bring. The theme of this year’s Asian Chemical Forum is “The New World Order of Petrochemicals: Pathways to a Sustainable Future” and there is a no more important time to be part of the discussion. Register today and join us in Singapore on the 3 & 4th of November.