(Nov 1): Major oil producers said the downturn in the chemicals market is showing little sign of easing, with a surge in Chinese supplies and lacklustre demand continuing to depress markets.
LyondellBasell Industries NV announced on riday it will idle production capacity at sites in Germany and the US from November, partly to cut costs. Shell plc said earlier in the week that there’s little end in sight to the downturn, though German chemicals giant BASF SE said global production expanded in the third quarter, despite contraction in European markets.
Europe is particularly hard hit, with producers including Ineos Group Ltd long warning that high carbon and other costs are undermining the region’s competitiveness relative to producers in the US and Asia. Output in China has surged in recent years, bolstering supplies and forcing plant closures elsewhere.
“I would firstly just acknowledge once again the depth of the trough that we find ourselves in,” Shell chief executive officer Wael Sawan told investors on an earnings call this week, refering to the chemicals market. “We just don’t see a line of sight to when that up-cycle is going to come.”
The continent’s producers were further pressured by soaring power costs in the wake of Russia’s invasion of Ukraine in early 2022. The industry is a leading indicator of economic health or weakness, as plants produce materials for everything from car parts to packaging. It is also expected to drive demand for oil as consumption of transport fuels starts to ebb.
The production curbs at LyondellBasell’s Wesseling plant follow similar moves at major sites across Europe, including a Dutch plant run by Dow Inc. Last year, Exxon Mobil Corp closed chemicals capacity in France. TotalEnergies SE has announced the closing of capacity in Antwerp, its biggest oil-processing complex in Europe. Ineos says Grangemouth, the UK’s biggest chemicals plant, is at risk.
See also: Opec+ to approve small output hike for December, delegates say
RBC Capital Markets said the chemicals market is currently complicated by producers who may be making investment decisions for reasons other than seeking a reasonable return — whether it be China looking for increased self-sufficiency or Middle East players seeking to lock-in demand for crude.
“This creates a challenging dynamic in itself,” Biraj Borkhataria, an analyst at the bank said. “It’s a tough space right now with little to be constructive about.”
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