Global chemical industry outlook: Assessing today’s strong markets and preparing for the 2020s

The year 2018 represents the sixth year of an extended upcycle in global chemical markets - characterized by robust demand, tight supply, and strong profitability. This extended period of profitability has caused a surge in reinvestment planning activity in North America, the Middle East, China and other Asia locations. Even in Europe, thought to be disadvantagedcompaniesare pursuing investments in new capacity. The forecast for new petrochemical investments integrated with refining could result in capacity additions that overwhelm trend line demand growth in many markets. At the same time, many risks are developing that represent potential drags on global growth. Key issues include rising crude oil prices, domestic fiscal policy and currency fluctuations, geopolitical tensions, and a variety of trade disputes. Slowing economic growth in the early 2020s represents a threat to strong chemical market conditions. As the industry rides a wave of high profits, IHSM is tracking the emergence of several trends that will reshape refining and chemicals industries during the 2020s:

• Mobility trends and refinery/petrochemical integration: A forecasted decline in the rate of growth for transportation fuels is causing many refining companies to re-think their petrochemical strategy, seeking a higher conversion of crude oil into chemical products.
• Plastics recycling and waste: these are perhaps the most critical issues that will influence the industry during the 2020s. Globally, communities are exploring bans on single-use plastic applications, while the visual of plastics waste in the oceans is now an international media issue. A slowdown in demand growth for commodity plastics resulting from increased recycling and application bans, must now be considered in long-term forecasting.
• Evolution of the Chinese chemical industry: The solidification of China as a global force in chemicals continues, as many changes are occurring in China's domestic market. Key areas to watch include: economic transition, environmental protection, fuel standards, private ownership, self-sufficiency goals, conventional/non-conventional technology, capital cost advantage, an advancing specialty chemical sector, and international trade ambitions.
• Heavy-versus-light feedstock competitive environment: Crude-to-chemicals technology is emerging in all regions while investments in gas-based chemicals in North America continue. Regional competitiveness will be significantly influenced by the price of crude oil. Ethane is no longer a "trapped" feedstock in North America, as companies have invested in the infrastructure to bring this low-cost feedstock to the international market.

During the decade of the 2020s, investors in the chemical industry will seek to balance the "petrochemical trilemma,": economic benefits of investment in the chemical value-chain, a sustainable approach to the consumption of natural resources, and offering sound environmental stewardship that is responsive to societal demands for a healthy and clean environment. The images of smog-filled air and beaches filled with plastics trash are moving local communities and political leaders to take actions that are not always the best solution to the problems at hand. The chemical industry must continue to proactively engage on all fronts - seeking cooperative, fact-based solutions to these challenges and working side-by-side with local communities and government. IHS Markit can support your need to understand how your business can thrive in the 2020's. Reach out to the experts in this issue to start the conversation.

Posted 03 August 2018 by Mark Eramo, Global Senior Vice President, Oil Markets, Midstream, Downstream, and Chemicals, S&P Global Commodity Insights