Challenges shaping the chemicals industry in 202323 Feb, 20238:34
Will 2023 be a year of continued unpredictability for the chemicals industry?In 2022, the d...
Will 2023 be a year of continued unpredictability for
the chemicals industry?
In 2022, the downstream chemical market grappled with uncertain
demand in many areas. Rising production and transportation costs and increased
pressure to lower carbon footprint decreased profitability and public and
government pressures to produce more recyclable products, saw chemical
companies shift their focus to more sustainable practices.
But will this uncertainty persist into 2023, and is there a
We've analysed data and opinions from key industry reports
to present the strongest predictions for 2023 for the chemicals industry.
Overview of the chemical industry in 2022
2022 was a difficult time for the chemicals industry,
particularly in Europe. The conflict in Ukraine, higher resulting energy
prices, and high inflation dampened growth in the region and saw Europe import
more chemicals than it exports, for the first time.
The conflict has, in turn, affected global chemical
supplies; Ukraine is the world's largest supplier of noble gases and is Europe's
biggest ammonia producer for fertiliser. On the other hand, Russia has been a significant
exporter of materials used in vehicles, including platinum and palladium, as
well as 22% and 14% of the world's supply of titanium and aluminium, respectively.
The rising cost of energy in Europe also had a considerable
effect. The chemical industry is very energy intensive, requiring high levels
of natural gas feedstock. With the shutdown of the EU's main gas supplies and
the rising cost of gas from imports, many companies have struggled through
increasing prices and tighter margins.
Chemicals company Dow
experienced a huge decrease in their earnings for the third quarter, with their
European olefin and polymer business even incurring a loss. Additionally, LyondellBasell
Industries' earnings declined by 63%, Eastman
Chemicals' by 26%, and Covestro's
In the UK, the Chemical
Industry Association's (CIA's) yearly survey revealed a dip in sales since
the start of the pandemic, with more than 40% of chemical firms experiencing a
decrease in sales in the first quarter of 2022. The trade body stated that
energy prices, raw material costs and shortages, and labour costs were the main
reasons for this slump and that these issues continue to become more serious.
There was however, some growth in the industry - mainly in
the electronics, automotive, healthcare and agricultural sectors. For example, Kemira, based in Finland, supplies services
to food, water and energy companies and has reported a 40% increase in revenue
The US market has also seen challenges. A survey in August
2022 from the American
Chemistry Council (ACC) reported that over 50% of manufacturers halted
production because they could not deliver products to their customers, while
35% of respondents said customers cancelled their orders over concerns with
Despite this, the US
chemicals sector performed well compared to other regions. The lowered
supply of chemical fertiliser from Ukraine has boosted prices and exports of
US-produced fertiliser products. These producers also have a competitive
advantage in energy, supplied by comparatively cheaper domestic US shale gas.
China, meanwhile, remained the world's
largest producer and consumer of chemicals, accounting for about 45% of the
global chemical market. After seeing year-on-year growth since 2010 (where the market
share was around 26%), it has become a critical contribution to the country's
GDP. The country is the biggest exporter in markets such as silicon, PVC, and
many specialist chemicals.
Chinese chemical production decreased in 2022 as a result of
COVID-19 restrictions. Chemical production is concentrated in areas like
Shanghai. With more than 25% of the workforce under the effect of lockdown,
factories were shut down or working at minimal volumes, with workforces
quarantined to the factories.
Many predictions claim these economic conditions will
persist into 2023, but is there any good news? And how is the industry
Chemical Industry Predictions for 2023
Feedstock supply is healthy, but low
demand will put margins under pressure
As the world recovers from the economic downturn of 2020
following the pandemic, the industry seeks to resume the growth trend. The current
polyolefin feedstock supply is healthy, but oversupply issues are expected in the
first half of 2023. Feedstock production has outstripped demand, which means that
overstocked capacity will negatively affect profitability.
High supply and low demand will mean prices remain unpredictable
for the first part of 2023. This will mean tight margins across the value chain
unless downstream demand rises in the latter half of the year.
Inflation and the cost-of-living crisis
will continue to suppress consumer confidence
High inflation, energy prices, and the cost-of-living
crisis will continue to dampen consumer spending on goods in end-use sectors. In
addition, inventory reduction measures through the second half of 2022 have led
to weak demand, with retailers and brands looking to reduce their inventories
and cut costs in response to consumers reducing their outgoings.
According to a report by Wood Mackenzie, this dampened
consumer spending is likely to continue through the first half of 2023, with
living costs anticipated to rise further. If inflation falls in the US and
Europe as their governments aim, then there's optimism that demand will
increase in the second half of 2023.
China's recovery from lockdowns hampered
by supply and global inflation
Following the long lockdown and special measures across
Shanghai, the region is attempting to manage a second wave of COVID infections.
This will affect China's production capacity as much of the country's chemical
production is concentrated in the regions around Shanghai. This slowdown will
likely slow the industry's growth through the first half of 2023. Weak
downstream demand will also cause capacity issues for chemical producers, with
overcapacity being an ongoing issue for polymer markets through 2023.
And as previously mentioned, China is a significant global exporter
of specialist chemicals. Demand for these products across Europe and the US will
likely remain diminished due to inflation, further affecting growth.
Recycled materials will be in short supply
as public demand grows
Demand for recycled materials is expected to grow, in line
with public expectations of companies and governments looking to meet plastic
reduction targets. In 2023, brands will continue to invest in their circularity
targets, bringing plastics back into feedstock. The challenge through 2023 will
be a limited supply of recycled materials, particularly for food-grade
packaging producers under pressure to move to more sustainable products, which
could affect pricing this year.
The main focus through 2023 will be the improvement of the
recycling collection and sorting, as well as improvements to infrastructure, to
increase the viability and efficiency of waste recycling and returning
materials to feedstock.
Sustainability will be a priority and
drive ESG agendas
Recycling is just one part of the sustainability ecosystem. Chemical
companies will continue developing their environmental, social, and governance
(ESG) standards to drive their decarbonisation strategies.
There are three areas, or Scopes, to consider for measuring emissions. Scope 1
involves direct emissions from company-own assets, including facilities and
vehicles. Scope 2 looks at indirect emissions associated with the generation of
electricity. And Scope 3 emissions are indirect emissions resulting from
transportation and waste. Chemical producers will work towards these targets
across all three scopes in 2023, but progress will likely be slow.
For example, DSM increased its renewable energy purchasing targets to 100% by 2030.
BASF signed contracts
in 2022 to purchase up to 660,000MWh of wind and solar electricity each year,
with an output of 250 MW. As a result, more than 25% of BASF's North American
power will be sourced from renewable electricity. Covestro plans to
construct a £27 million polycarbonate recycling plant in Shanghai, China. This
facility will be capable of producing 25,000 tonnes of polycarbonate products
with recycled content by 2023.
The growth of the EV industry is an
Source: McKinsey & Company
Despite the challenges mentioned above, the industry does
have some positive outlooks, and the growth of the Electric Vehicle (EV)
industry is just one area of good news.
Industry insights specialists McKinsey and Company predict
that by 2030, battery electric vehicles (BEVs) and plug-in hybrid electric
vehicles (PHEVs) will make up more than 55% of new vehicles produced by 2030
in China, Europe and the US. Driven by public perception, government policy
and incentives, and lower vehicle purchase costs, the EV market globally is set
3-5% across the major car markets of China, the US and Europe.
There is a continuing shift towards lighter EVs, including polypropylene, which accounts for over a third of the plastic demand in the transport sector. EV production also uses 3-5% more plastic than internal combustion engine (ICE) vehicles, and this increased demand will drive growth.
Demand for EVs is forecast to rise through 2023 onwards. Source:
The first half of 2023 is likely to remain challenging. There
will be continued risks from ongoing conflict, energy prices and inflation, and
issues with trade and supply. Chemical producers will be looking to invest and
develop decarbonisation strategies while balancing higher costs and lower
profit margins. Capitalising on growth in demand in specialist markets such as
EVs will be key. Still, predictions show increased confidence going into the
second half of 2023, with demand slowly recovering.
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