LANXESS actively tackles natural gas supply woes

Recently, Chang Mutian, CEO of Lanxess, said in an interview with foreign media that the company has prepared for the worst-case scenario of all Russian gas supplies to Europe being cut off. If that happens, the company will cut production or close gas-intensive plants, allowing most of its remaining operations to continue. In order to cope with the logistics disruption, they have established safety stocks of some key raw materials in advance to ensure that there is no supply disruption. LANXESS predicts that market demand will remain weak in the third quarter.

Prepare for Gazprom Interruption

In response to the possibility of Russia cutting off gas supply to Europe completely, Chang Mutian said: "LANXESS is ready. We have conducted a detailed assessment of the consequences of Russia's non-supply of gas. LANXESS will reduce the output of these plants or close them. Two sets of natural gas-intensive production units are used to deal with this situation.” It is understood that the two sets of natural gas-intensive production units of LANXESS are located in the largest production base of LANXESS in Leverkusen, with a total of 23 sets of production units. At the Leverkusen site, LANXESS mainly produces basic chemicals, precursors and active ingredients for pharmaceuticals and crop protection products, raw materials for paints and coatings, water purification products and plastic additives. Chang Mutian pointed out that the closure of the two production units will reduce the natural gas consumption of the Leverkusen production base by 50%, and other units can maintain normal production.

Chang Mutian said that the current extremely high natural gas prices in Europe are unsustainable because both consumers and industries are already reducing their use of natural gas. Chang Mutian pointed out: "The European natural gas market reflects market panic. From the perspective of supply and demand, it is absurd that natural gas prices have risen by 1,000% to 2,000%. If consumers reduce natural gas consumption because of high prices, and the industry is unable to pay End customers pass on costs and reduce production, then gas consumption will fall. Gas is a commodity, and when consumption and demand fall, prices should of course adjust." 25 August, European gas price benchmark - Dutch TTF Gas Front-month futures hit a record high of more than $91 per million British thermal units. In the first half of 2021, the price was mostly in the single digits before it started to fluctuate significantly. After the Russian-Ukrainian conflict broke out in February this year, Russia's natural gas delivery to Europe decreased, and the volatility of the European natural gas market intensified.

Chang Mutian predicts that European energy prices will soon peak. Chang Mutian said: "Energy prices have peaked, so there will be no negative shocks. We have seen some companies close factories, such as fertilizer plants. These factories need to consume a lot of natural gas. If private consumers and industrial consumption If everyone quits, gas demand will drop.”

Safety stock established

Due to the limited supply of natural gas, there are concerns that inventories of downstream products of natural gas will be quickly depleted. In this regard, Chang Mutian said: "Although some natural gas-intensive ammonia plants in Europe have shut down, LANXESS has no problem sourcing key raw materials such as synthetic ammonia. Synthetic ammonia is a global commodity that LANXESS can source from other parts of the world. .” LANXESS’s production site in Antwerp, Belgium, uses synthetic ammonia as a raw material to produce caprolactam and then nylon 6. LANXESS' production site in Antwerp has a production capacity of 220,000 tons/year of caprolactam. Chang Mutian pointed out: "As far as caprolactam is concerned, two competitors in Europe have been forced to stop production and reported force majeure. But LANXESS can ensure the supply of raw materials for caprolactam."

Chang Mutian said that in Europe, LANXESS has established inventories of certain raw materials to reduce the risk of force majeure. "LANXESS has decided to establish a safe raw material inventory in the past 6-12 months. In the current environment, the flow of raw materials is abnormal, and companies must establish sufficient safety inventory and liquidity, otherwise they will encounter force majeure. , it will affect customers. As a world-renowned chemical company, LANXESS decided to build inventory reserves." Chang Mutian said.

Weak demand in the third quarter

Regarding the outlook for the third quarter, Chang Mutian said: "In terms of market demand, the weak momentum in the second quarter will continue into the third quarter, but there will not be a sudden double-digit sharp decline. We clearly see that the automotive and construction are softening, but some sectors are also growing, such as the agrochemical market, which has been at a slump in the past five years.”

Lanxess' consumer protection unit is doing "pretty well", he said, but there are logistical constraints on shipments from the U.S. to Europe and from Europe to Asia due to port congestion and other issues. Chang Mutian said: "Logistics constraints are no longer worsening. Logistics are improving moderately everywhere, but they are still very limited. This is still a major problem. Our assumption is that logistics guarantees will not be fundamental until the second half of 2023. Improvement. Logistics improvements in the second half of 2023 will come from increased capacity from shipping lines and an expected weaker business environment reducing demand.”