Page 131 - CW E-Magazine (1-7-2025)

Point of View

Fundamental shifts altering global petrochemical

markets

The petrochemical industry is in the midst of a tectonic shift the likes of which it has never seen. This has upended several trends
that seemed irreversible even a few years ago and posing businesses severe challenges. The changes have been unleashed on the
industry due several factors all coming together in a perfect storm, and the result is the longest trough in recent memory, which has
squeezed margins across most value chains. The most impacted are producers in regions where growth is tepid (which is much of
the developed world) and with little or no access to low-cost feedstock (which includes much of the world except for North America
and the Middle East).

The industry is slowly coming around to the realisation that is the ‘new normal’, but navigating through these turbulent times is
complex and painful. Just this issue has three announcements by international majors to shutter plants (two in Europe, and one, by
a western major in China); as well as one cancellation of a much-talked about project for green hydrogen (in the UK). This is pattern
being repeated for some time now; every month sees such pronouncements – mainly from companies in Western Europe and Northeast
Asia (in particular, Japan). China’s chemical industry – the world’s largest – is also seeing a rationalisation of capacity (though these
seldom make headlines). Here, new, significantly larger capacity builds are replacing older, smaller and inefficient plants, and the net
result is a significant ramp up of capacity, even if not at the blistering pace of the past two decades.

The situation is very different in India, partly due the reason that in most value chains domestic capacity trails far behind domestic
demand, and tariff and non-tariff barriers provide reasonable protection against a flood of cheap imports. There is still significant space
to accommodate new capacity, and plant closures have been few and far between, which is also partly due the fact that closing
businesses is hard, requiring several regulatory sanctions. While margins are squeezed, most companies continue to plod along in the
hope things will turn better.

What are some trends that have emerged in the last couple of years, and is a recovery around the corner?
The end of globalisation
The era of globalisation is truly over. It is a pity, but a reality. The writing was on the wall for some time, but the tariff wars unleashed
by the US administration has accelerated the shift, which is accentuated by sharp geopolitical differences. A political and economic
decoupling of sorts is taking place between the East and the West, notably between China and the US.

India is trying to find a space that will best serve the country’s interests. While the government here is rightly concerned over a
growing dependence on China (for several industrial inputs) it is also unsure of the compromises it may have to make in the ongoing
trade negotiations with the US. Some industry lobby groups in India, such as for pharmaceuticals, which have significant exposure to
the US market and hence most worried about stiff tariff barriers on their products, have asked for throwing open India’s markets for
drugs & pharmaceuticals as a sop, in the belief that there is little to be lost and much to be gained by doing so.

Lobby groups representing the classical chemical industry have been somewhat more circumspect in stating their position, but there
are concerns that high tariffs will dampen exports that have just started to gain momentum. But the concerns India’s chemical industry
has go beyond the threat to its exports. The petrochemical industry here is looking to the US as a source of cheap ethane for crackers
otherwise based on expensive naphtha. Reliance Industries Ltd. (RIL) is already importing significant volumes of this feedstock, and
others are also looking to do the same and putting in place the infrastructure needed to manage the complex logistics. While the move
has obvious economic benefits for producers here, it too is not without risks. The US has weaponised ethane exports as a part of its
negotiating strategies with China and has imposed curbs on its unencumbered exports to the country (though not to India). Just last
week came news that an ethane consignment due to a customer in China had to be diverted to India (to RIL) due compliance issues.
Considering there are no ethane exporters elsewhere in the world, this feedstock-sourcing approach does come with risks though, in
the industry’s assessment, it is outweighed by the benefits.

Putting the brakes on the energy transition
For many leading petrochemical companies, the energy transition has been a major strategic focus for some time, but there is

Chemical Weekly July 1, 2025 131

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