Page 139 - CW E-Magazine (19-11-2024)

Point of View

Slew of plant closures and capacity rationalisations

point to challenges facing chemicals industry

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 last step 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

Chemical Weekly November 19, 2024 139

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