Flanking up and down, the European chemical market is even worse

Against the backdrop of escalating geopolitical conflicts in Eastern Europe and global market inflation, changing market fundamentals are changing the landscape of the European chemical industry and are now becoming the dominant factor in the European chemical market. Recently, ICIS London released a report showing that at present, the basic demand of the European chemical market has dropped sharply, and the market lacks the willingness to buy. This makes the European chemical industry, which is already suffering from rising raw material prices, even worse.

Downstream demand is fading

In the first half of the year, although the European chemical industry also faced the problem of high energy prices, chemical companies generally made high profits due to strong demand. However, coming into the fall, the demand fundamentals that underpin the European chemical industry are starting to weaken.

ICIS said in the report that there are already signs of weak demand in Europe, and this pessimism is being transmitted upstream. European chemical market sentiment is not expected to improve this winter, and this may continue into 2023. Oliver Schwartz, an analyst at the Hamburg-based Warburg Institute, described the current situation in Europe as essentially a "shopping strike" by end consumers due to the high cost of living. "Currently, downstream products in the chemical value chain are the most affected, but this does not prevent weak demand from affecting upstream products in the value chain, it just takes longer to transmit," he said.

Currently, all chemical sub-sectors in Europe are pessimistic. In the olefins market, market participants do not expect demand for olefins to pick up in September. In the methanol market, high methanol inventory levels in Rotterdam, the European methanol trading center, coupled with a lack of buying interest in the market, may push methanol prices lower. A methanol trader in Europe said: "The European methanol market has significantly reduced trading activity. In the next month or two, if the situation does not change, the market may become more weak." For methyl methacrylate (MMA), a European manufacturers say that compared with the previous year, the demand for MMA in the European market has fallen by 20% to 30%. And a phenolic resin producer said that the current European demand for phenolic resin is down 15% compared to the same period in 2021.

Business production is slowing

At present, although countries have been actively replenishing their inventories, the security of natural gas supply in Europe is still threatened. For the chemical industry, natural gas has pushed up production costs, and coupled with weak demand, some producers have opted to reduce production of chemical products.

A European buyer of acrylonitrile said that the acrylonitrile market has begun to collapse. Buyers and producers are talking about lower operating rate levels in the fourth quarter. An integrated olefins producer in Europe said it was studying what to do in current market conditions, saying it might try to reduce output. In the polyethylene market, with the US chemical giant Dow Chemical announced to reduce the operating rate of the global polyethylene plant by 15%, the polyethylene market situation is grim.

Propylene has been strongly impacted by the current situation. A European producer of propylene downstream derivatives said it has considered closing a European plant in November and December this year. Another European propylene downstream derivatives producer said it had already reduced operating rate levels in August, but the market still showed no signs of recovery and may have to further reduce operating rate levels for the rest of the year. The propylene derivatives producer added: “Europe’s record high gas and electricity prices are killing the industry. Europe has seen the first closed or insolvent propylene derivatives producers. Sentiment is at an all-time low ."

Some polyethylene terephthalate (PET) plants in Europe have stopped production due to insufficient demand and high costs. Producers are planning to shut down PET plants for maintenance between now and the end of this year, and it is unclear how many will resume production as planned. A PET industry source said: “As the market is very weak, most companies will think twice before resuming production after overhauls are completed.” Similarly, in the recycled polyethylene terephthalate (R-PET) market, demand Also wobbly, the outlook remains pessimistic.

Changes in global trade flows

One of the important factors weighing on the market is changes in trade flows, with rising exports from Asia also preventing European producers from maintaining profit margins. In Europe, the energy crisis has led to high production costs and relatively high prices of chemical products, while in the Asian market, due to relatively low production costs and weak demand, producers have sought to export to the European market, resulting in changes in global trade flows.

This change has unsettled the European engineering plastics market. An engineering plastics market source said it was uncertain how the rest of the year would play out as strong demand in the first half faded in the third quarter. The engineering plastics source said: “Asian producers are looking for ways to ramp up their exports, including lowering prices, with high inventories due to weak demand. European producers with high inventories face challenges as Asia is exporting Lots of cheap material."

A European buyer of 1,4-butanediol (BDO) said that BDO demand in the European market is also declining, and for the remaining demand, traders are trying to source from other regions to take advantage of arbitrage opportunities to supplement or completely replace their European products. The European market for isocyanates and polyols has been similarly affected, as there is greater market potential for imported products in Asia.