The petrochemical industry is in the midst of a tectonic shift the likes of which it has never visible. This has defeated numerous trends that seemed irreversible even a few years ago and posing businesses severe situations. The changes had been released on the industry due several factors all coming together in a perfect storm, and the end result is the longest trough in current memory, which has squeezed margins across most value chains. The most affected are manufacturers in areas in which growth is tepid (that is much of the developed world) and with very little or no access to low-cost feedstock (which includes a much of the world besides for North America and the Middle East).
The industry is slowly coming around to the realization that is the ‘new normal’, but navigating via these turbulent times is complicated and painful. Just this trouble has 3 bulletins by international majors to shutter plants (2 in Europe, and 1, by a western major in China); as nicely asone cancellation of a much-talked about venture for green hydrogen (in the UK). This is pattern being repeated for a while now; each month sees such pronouncements – particularly from corporations in Western Europe and Northeast Asia (especially, Japan).China’s chemical industry – the world’s largest – is likewise seeing a rationalization of capacity (even though those seldom make headlines). Here, new, significantly large capacity builds are changing older, smaller and inefficient plant, and the net result is a significant ramp up of capacity, even supposing no longer at the blistering tempo of the past two decades.
The situation is very different in India, in partially due the reason that during most value chains domestic potential trails far behind domestic demand, and tariff and non-tariff barriers provide affordable safety in opposition to a flood of cheap imports. There remains tremendous space to accommodate new capacity, and plant closures had been few and a long way between, which is also partly due the fact that ultimate businesses is hard, needing several regulatory sanctions. While margins are squeezed, most companies retain 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 globalization
The era of globalization is honestly over. It is a pity, however a fact. The writing was into on the wall for a while, but the tariff wars released by the America administration has expanded the shift, that is accentuated by sharp geopolitical differences. A political and economic decoupling of sorts is taking place between the East and the West, drastically between China and the US.
India is trying to find a space with a purpose to best serve the country’s interests. While the administration here is rightly concerned over a developing dependence on China (for several industrial inputs) it’s also unsure of the compromises it may have to make in the ongoing trade negotiations with the US. Some industry lobby groups in India, including for pharmaceuticals, which have huge exposure to US marketplace and hence most concerned 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 may be little to be lost and much to be gained by doing so.
Lobby groups describing the classical chemical industry have been fairly more circumspect in stating their position, but there are worries that high tariffs will dampen exports that have simply begun to accumulate momentum. But the worries India’s chemical industry has go beyond the hazard to its exports. The petrochemical industry here is seeking to US as a source of cheap ethane for crackers in any other case primarily based on expensive naphtha. Reliance Industries Ltd. (RIL) is already importing considerable volume of this feedstock, and others are also seeking to do the same and putting in place the infrastructure needed to manipulate the complex logistics. While the move has apparent economic advantages for producers here, it too is not with out dangers. The US has weaponized ethane exports as part of its negotiating strategies with China and has imposed curbs on its unencumbered exports to the US (even though not to India). Just last week got here information that an ethane consignment due to a customer in China had to be diverted to India (to RIL) due compliance troubles. Considering there aren’t any 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 advantages.
Putting the brakes at the energy transition
For many main petrochemical corporations, the energy transition has been a major strategic focus for a while, but there is developing indication that many are placing the brakes on venture or as a minimum taking the foot of the accelerator. Signals from regulators in the US or even Europe are using this transformation. The new US administration is truly no longer anxious with green energy and is placing its emphasis on increasing fossil fuel manufacturing and use. In Europe, initiatives which includes the Carbon Border Adjustment Mechanism (CBAM), which aimed to tax the carbon-intensity of products made outside the European Union, are being postponed and/or diluted to include of a narrower variety of products. Products of the chemical industry (with some exceptions) have been excluded from the primary lot of products to come back under the ambit of CBAM, but there is nevertheless relief that its inclusion, if it comes, could be later than in advance anticipated.
While the withdrawal of the US from the Paris Climate Treaty become extensively anticipated, New Zealand too is reported to be pondering an exit. Private finance groups also are stepping lower back from environmental, social and governance (ESG) commitments. BlackRock, a heavyweight in the world of finance, has withdrawn from the voluntary Net Zero Asset Managers initiative, an worldwide group of asset managers committed to assisting the purpose of net zero greenhouse gas emissions by 2050 or sooner.
Continued pressure on margins
The economic slowdown in the developed world, in part due demographic modifications (declining and/or ageing populations), is slowing chemical needs. While the pandemic did compress demand for petrochemicals globally, much of the world, bar China– the world’s largest consumption and manufacturing centre for chemicals –has seen a pointy rebound. Economic growth in China has plummeted from an 8% 20-year annual average to simply 4.4% in 2025.
As a consequence, the worldwide near-term demand increase for simple chemicals is predicted to be lower than predicted just a few years ago. They are, for instance, anticipated to be down about 0.5% yearly for commodity polymers, which may not seem much, but is sufficient to crush down profitability.
On the supply aspect, the main component setting pressure on margins are the new ventures arising in China, driven by the country’s quest to increase the level of self-sufficiency. Though there are some plant closures as well, they faded in comparison to the new additions anticipated. India too is ramping up potential in numerous petrochemical value chains – to first serve the domestic market – however these numbers are puny compared to China.
Between 2024 and 2028, approximately 42-mtpa of incremental ethylene capability is predicted globally, at the same time as call for is projected to increase by only 30-mt cumulatively at some stage in the same period. Such a supply surge, approaching top of existing oversupply, is the prime cause for the significant decline in operating rates and margins.
The mixture of the demand slowdown and the appearance of recent integrated capability has caused a sharp reduction in import dependency in China and even turned a few value chains to a net export position. Going by past experience, such a shift is not likely to opposite, and best boost up. This is compelling providers in numerous different areas, which include the Middle East, Southeast Asia and Northeast Asia, to re-evaluate export techniques, and are seeking new demand centres for their products. India, with its significant gaps among domestic demand and supply, is on their radar, as are countries in Western Europe and Southeast Asia. However, none of these regions – individually or together – will make up for the demand ‘lost’ in China.
Chemical Market Analytics, a consultancy, reckons the industry has not yet reached the lowest of the trough, and that a healing to ancient margins levels will no happen till the end of the decade.
How a long way down the road is the discovery?
There is consensus that the petrochemical industry is in an long-term and structural slowdown, with China the hub of the crises, even though not the only determinant. There is less agreement on how far the recovery is ahead – optimists put it at 3 years, pessimists as much as nine. None of the two views provide any comfort!
The oversupplied market has already prompted a significant restructuring of capacity. Expect to see more!
India will stay the fastest growing big market for chemical, in general, and petrochemicals, specifically. But manufacturers here will not be immune to the pricing pressures global markets will unleash.
