Global Chemical Market Fundamentals – Capacity Overbuild To Rebalance Requires Demand Growth with Supply Constraint
By James Williamson, Vice President, Research and Analysis

2023 was one of the toughest years the Chemical Industry has endured, as recent capacity expansions collided with declining demand, de-stocking, volatile energy and feedstock prices, trade disruptions, rising interest rates, and growing geopolitical tensions.

While early 2024 has shown some slow signs of improvement, the medium-to-long-term outlook continues to have significant challenges ahead, including:

• Subdued global GDP growth is gradually decelerating towards a 2% forecast over the next ten years.
• Global chemical markets have significant capacity overbuild across multiple value chains. While some improvement in utilization rates is expected, they remain below levels that allow any meaningful recovery in profitability by the end of the current decade.
•  NE Asia, the key driver of demand growth historically, is set to see substantially lower demand growth in the 2020-2040 period (c.2-3%) vs. 2000-2020 (c. 6-7%). This has significant implications for the duration of the downturn and the industries’ response to it.
•  The Energy Transition will significantly impact the Chemical Industry’s market dynamics, as refinery reconfigurations require higher values for the key liquid feedstocks used by the industry, especially in Northeast Asia and Europe.
•  The Middle East is actively seeking ways to monetize its significant oil-based reserves. An increasing portion of the oil barrel is likely to be used in chemical production, which has significant implications for global supply/demand and trade.
• Who will be the winners and losers? Middle East and N. American producers with advantaged ethane feedstock seem less susceptible, while Europe and NE Asia must consider specialization and potential rationalization.

Geopolitics

Gordon Fairclough, World Coverage Chief, The Wall Street Journal