Energy

HOUSTON (ICIS)–CF Industries said in its latest nitrogen fertilizer market outlook global pricing was supported in the third quarter of 2024 by strong global demand, lower supply availability due to natural gas shortages, China’s absence in urea exports and planned maintenance activities in the Middle East. The US fertilizer producer said that in the near-term their management expects the global supply-demand balance to remain constructive, as inventories globally are believed to be below average and energy spreads continue to be significant between North America and high-cost production in Europe. CF said for North America that while grains prices are under pressure from expected high crop production it is their belief that the fall ammonia application season for the US and Canada will be positive if weather is favorable. US crop returns for 2025 are forecast at similar levels to 2024, which is expected to support stable planted corn acres year on year. The producer said over the medium-term, significant energy cost differentials between North American producers and high-cost producers in Europe and Asia are expected to persist. As a result, CF believes the global nitrogen cost structure will remain supportive of strong margin opportunities for low-cost North American producers. Looking at Brazil the producer said through September 2024 that urea imports to the country were 5.4 million tonnes, 13% higher than through the same period in 2023. CF said Brazil is expected to import 2.0-2.5 million tonnes of urea in the fourth quarter due to forecast higher planted corn acres and nominal domestic production. For India the company feels there is significant urea import requirements remaining through March 2025 due to favorable weather for rice, wheat and other crop production as well as lower-than-targeted domestic urea production driving greater import need. Regarding Europe CF said there is approximately 20% of ammonia and urea capacity which was reported in shutdown or curtailment modes as of September 2024. The company said management believes that ammonia operating rates and overall domestic nitrogen product output in Europe will remain below historical averages over the long-term given the region’s status as the global marginal producer. For China the producer noted that the ongoing urea export controls by the government continues to limit urea export availability from the country. Through September 2024, China has exported 254,000 tonnes of urea, 91% lower than the same period in 2023. In Russia the company said the urea exports have increased by 5% this year due to the start-up of new urea granulation capacity and the willingness of certain countries to purchase Russian fertilizer, including Brazil and the US. Exports of ammonia are expected to rise with the completion of the country’s Taman port ammonia terminal though CF noted that annual ammonia export volumes are projected to remain below pre-war levels. Looking at the longer-term view of nitrogen the producer is expecting the global supply-demand balance to tighten as global capacity growth over the next four years is not projected to keep pace with expected global lift in demand of approximately 1.5% per year. As far as global production CF said it is expected to remain constrained by continued challenges related to cost and availability of natural gas.

30-Oct-2024

HOUSTON (ICIS)–US LSB Industries said it was able to complete a successful turnaround of their Pryor, Oklahoma, fertilizer facility. The company said in a third quarter update that the investments at Pryor were focused not only on improving its reliability and daily ammonia production volume, but also included the debottlenecking of the facility's urea plant. LSB expects this effort will result in an incremental of 75,000 short tons annually of UAN output. At the El Dorado, Arkansas, facility the producer said it completed the construction of an additional 5,000 short tons of nitric acid storage which is providing the ability to capitalize on incremental sales opportunities not previously available. A turnaround at the Cherokee, Alabama, facility will take place this November and a turnaround at El Dorado is scheduled for the third quarter of 2025, with the primary goal being increased volumes. LSB said it continues to make progress on its two energy transition projects and is expecting to start producing low carbon products at El Dorado beginning in 2026 pending regulatory approval. Regarding the Houston Ship Channel project, the company said it has completed the pre-front end engineering design and is working through the results as well as engaging with potential customers and preparing to select an engineering contractor for the final study. It expects to start that effort during the first half of 2025 with completion by mid-2026. Looking at fertilizer market conditions the producer said the ammonia market is healthy, and pricing has been strong driven by many factors including tight US supply dynamics along with geopolitical concerns and extended turnarounds and outages reducing global inventories LSB also cited the delayed start-up of new production capacity in the US Gulf and an export terminal in Russia For UAN the producer said pricing remains solid due to low inventories in the distribution channel following both spring applications and summer fill program with there being historically low imports and strong exports As it looks ahead it feels there is potential pent-up demand at the retailer and producer level which could lead to favorable order volumes and pricing in the first half of 2025.

30-Oct-2024

Industry figures have warned of the vast challenge facing the transmission grid as the UK seeks to deploy more renewable generation The UK has an ambitious target to decarbonize the power system by 2030 LDES could be a solution to overcome grid bottlenecks and reduce curtailment costs LONDON (ICIS) – As the UK awaits the delivery of the Labour government’s first budget on 30 October, industry figures have warned of the scale of the challenge facing the transmission grid as it seeks to integrate rising volumes of intermittent renewables. National Grid CEO John Pettigrew told the Financial Times Energy Transition Summit in London on 24 October that the UK faced a “Herculean effort” to transform the grid, requiring changes to planning rules, regulatory frameworks, supply chains and skills training. GRID CONNECTIONS National Grid proposed applying a ‘first ready, first connected’ approach to all projects in the grid connection queue in April, which would enable earlier connection dates for viable projects. Pettigrew confirmed that this process would be implemented by the end of the first quarter of 2025 and that National Grid would prioritize technologies needed to meet the UK’s 2030 targets. These targets aim to double onshore wind, triple solar, and quadruple offshore wind capacity to decarbonize the power system by 2030. With up to 1GW/day awaiting connection at points in 2023, according to Pettigrew, streamlining the queue is a positive step, but grid constraints present another key issue. CURTAILMENT COSTS Many wind farms in the UK are located far from demand centers, and the electricity generated needs to be transported around the network. However, grid bottlenecks and a lack of storage solutions can force capacity curtailments when there is excess generation. Carolina Tortora, head of innovation, AI transformation and sector digitalization at National Energy System Operator (NESO), told delegates that capacity curtailments in the UK cost £1.4bn a year and that a solution is needed quickly. Two new 2GW-capacity interconnectors between Scotland and England, the Eastern Green Link 1 and 2, are not set to be operational until 2029. Tortora said that long duration electricity storage (LDES) could help manage the situation and reduce curtailment costs, pointing to Italian grid operator Terna’s success at using batteries to help manage congestion. LONG DURATION ELECTRICITY STORAGE LDES technologies store renewable energy and release it onto the grid when required, providing flexibility in the system often met by gas generation. The UK government launched a cap and floor investment scheme for LDES on 10 October, which could help developers overcome high upfront project costs for storage systems with a duration of 4 hours or above. Rubina Singh, senior investment manager at Foresight Ventures, told the summit that the mechanism reduced risk for revenue generation and debt security, but more still needed to be done. Laura Sandys, chair of the Green Alliance think tank suggested a move to blended incentives such as coupling a contracts for difference (CfD) agreement with LDES, to spur development of a wind farm and co-located battery. NESO estimates that 11.5GW-15.3GW of LDES will be required by 2050 to achieve net zero. However, pumped hydro storage is the only established LDES in the UK, with 2.8GW of capacity across four existing projects. Other technologies under development include compressed air storage, liquid air storage and flow batteries. Tortora told the event that caverns from extracted oil and gas could be used for compressed air, a technology that also contributes to inertia. Inertia is produced by the rotation of large generators, making it abundant in the power system underpinned by fossil fuels. This movement can temporarily cover a gap in power lost by a failing generator and allow the operator to respond. Inverter-based renewables, such as wind and solar, do not synchronize with the grid in a way that provides inertia, making compressed air a potential method to provide stability.

29-Oct-2024

HOUSTON (ICIS)–Australian Fertoz Limited said demand for direct application of rock phosphate and their fertilizer pellet product Fertify remained positive in Q3, with significant orders for Fertify starting in September. The company expects this uptick to continue through late 2024 with the phosphate producer saying this positive direction has come forth despite significant losses for farmers in the Alberta region of Canada due to pre-harvest hailstorms. In its quarterly activities report, Fertoz said there were delays in upgrades to granulation processing equipment by key customers, which slowed sales, but the expectations are for completion of these upgrades by year’s end. Fertoz managing director and CEO Daniel Gleeson said the bulk sample permit for 10,000 tonnes in Barnes is in the final stages with submission of a technical assessment review to the Ministry of Energy, Mines and Low Carbon Innovation. This permit is expected to be ready for the start of the 2025 mining season, with the next bulk sample permit at Pump Station, also for 10,000 tonnes, part of their overall advancement towards receiving an industrial minerals permit for up to 250,000 tonnes. The industrial permit is also expected to be completed early next year with Gleeson saying Fertoz continues to assess their Wapiti project for suitability of making phosphoric acid for the lithium iron phosphate (LFP) battery and liquid phosphate fertilizer markets. “Wapiti samples have been received by the testing party, with positive desktop results achieved, and will now process them in the laboratory for final reportable and definitive results. These final testing results are expected in December,” said Gleeson. “Concurrently we continue to engage with relevant parties of the LFP supply chain industry in North America who have expressed interest in our resources.” He said because of the significant direct government investments across North America and substantial future tax credits that overall interest remains elevated in their high quality, low impurity sedimentary rock phosphate deposits.

28-Oct-2024

HOUSTON (ICIS)–Union dock workers and US East Coast port operators will resume negotiations on a new master agreement in November, according to a joint statement from both parties. The International Longshoremen’s Association (ILA), representing the dock workers, and the United States Maritime Alliance (USMX), which represents the ports, reached a tentative agreement on 3 October that ended a three-day strike. The strike was paused until 15 January after parties agreed on the salary portion of the agreement, essentially meeting in the middle. But the union remains adamant against any full or partial automation at ports that could threaten union jobs. The respective negotiating committees will meet in New Jersey, where they will look to agree on terms for a new contract that can be presented to the full ILA Wage Scale Committee for approval, and later, to ILA membership for ratification, the statement said. “The ILA and USMX welcome the opportunity to return to the bargaining table and get a new agreement in place as soon as possible,” the parties said. The two sides will not discuss details of negotiations with the media prior to these meetings. IMPACTS TO CHEM MARKETS The short strike had some impact on the US chemicals industry, with polyethylene (PE) exports to Brazil being put on hold in the lead up to the work stoppage. The polyvinyl chloride (PVC) industry was concerned as all US Gulf PVC exports move out of one of the impacted East Coast ports. In the polyethylene terephthalate (PET) market, imports of PET resins were diverted to the US West Coast in anticipation of the work stoppage. The dock workers do not handle liquid chemical tankers, as most terminals that handle liquid chemical tankers are privately owned and do not necessarily use union labor. Also, tankers do not require as much labor as container or dry cargo vessels, which must be loaded and unloaded with cranes and require labor for forklifts and trucks. But container ships and costs for shipping containers are relevant to the chemical industry because while most chemicals are liquids and are shipped in tankers, container ships transport polymers, such as polyethylene (PE) and polypropylene (PP), are shipped in pellets. They also transport liquid chemicals in isotanks. Visit the ICIS Logistics – impact on chemicals and energy topic page Thumbnail image shows a container ship. Photo by Shutterstock

28-Oct-2024

HOUSTON (ICIS)–Agrimin Limited said their Mackay potash project in Western Australia is continuing to advance towards a final investment decision and that the development is now in the stage three assessment with the environmental regulators. The project is planned to be able to manufacture standard and granular sulphate of potash (SOP) products with its definitive feasibility study (DFS), completed in July 2020, showing that once in operation it could be the world’s lowest cost source of seaborne SOP. In a quarterly update on activities, the company said the timeline from the Western Australian Environmental Protection Authority is still expected to come in 2024, with supplementary government approval expected to follow in the first half of 2025. Agrimin said it is also progressing on the other secondary approvals and licenses necessary for the project with the Department of Energy, Mines, Industry Regulation and Safety and the Department of Water and Environmental Regulation. Regarding the final investment decision, the company said it is undertaking activities to reach that status including engineering efforts with advanced process testing and preparation for contractor involvement. It is also engaged in execution planning with a focus on critical path analysis and mitigation including earliest possible environmental surveys and baseline monitoring. Agrimin said it will also be working on funding for the project including potential strategic partnerships.

28-Oct-2024

SINGAPORE (ICIS)–Oil prices tumbled by more than $4/barrel on Monday morning as fears over potential supply disruptions in the Middle East eased, with sentiment weighed down by a sharp contraction in China’s September industrial profits. Israel airstrikes miss Iran’s oil facilities China Sept industrial profits contract 27% year on year China nine-month oil refining losses at CNY32 billion Product (at 04:00 GMT) Latest ($/barrel) Previous ($/barrel) Change ($/barrel) Brent December 72.61 76.05 -3.44 WTI December 68.45 71.78 -3.33 Israel’s retaliatory strikes on Iran over the weekend did not hit Tehran’s oil and nuclear facilities. “The more targeted response from Israel leaves the door open for de-escalation and clearly the price action in oil this morning suggests the market is of the same view,” Dutch bank ING said in a macro note on Monday. “Clearly, if we do see some de-escalation, it would allow fundamentals once again to dictate price direction,” it said. Iran, which is a member of oil cartel OPEC, has the world's fourth largest proven oil reserves. “And with a surplus market over 2025, this would mean that oil prices are likely to remain under pressure,” ING added. CHINA DATA IN FOCUS China’s September industrial profits fell by 27.1% year on year, while average earnings in the first nine months dropped by 3.5% year on year, according to the country’s National Bureau of Statistics (NBS). Lower production, especially in the motor vehicles sector amid a sharp rise in new energy vehicles weighed on demand. Car production in September fell by 8.1% year on year, while new energy vehicles rose by 48.5% year on year. China, the world's second-biggest economy, is also its largest crude importer. Its crude oil imports in September reached 45.5 million tonnes, down by 0.6% year on year, according to China Customs data. Crude processing capacity also fell by 5.4%, while capacity in the first nine months of 2024 fell by 1.6% year on year. Meanwhile, the oil refining sector posted losses of yuan (CNY) 32 billion ($4.5 billion) in the first nine months of 2024. The fall was attributed to insufficient market demand, a drop in industrial product prices and a significantly higher base since August, NBS statistician Yu Weining said in a statement on Monday. Investors will be watching a highly anticipated meeting between China’s leaders on 4-8 November in Beijing for potential further stimulus policies to aid growth. On 12 October, China’s finance minister Lan Fo’an had said that the central government might raise debt to arrest economic headwinds. Focus article by Jonathan Yee ($1 = CNY7.13) Thumbnail image: Iran's capital city of Tehran on 26 October 2024. (By ABEDIN TAHERKENAREH/EPA-EFE/Shutterstock)

28-Oct-2024

SINGAPORE (ICIS)–Here are the top stories from ICIS News Asia and the Middle East for the week ended 25 October. Asia's naphtha market eyes demand uptick By Li Peng Seng 21-Oct-24 11:38 SINGAPORE (ICIS)–Asia's naphtha intermonth spread was near a two-month high recently and it may be able to hold firm in the near term on reduced arbitrage volumes in November and anticipated demand growth ahead. Energy transition plan reset needed with renewed focus on Asia – Aramco President By Jonathan Yee 21-Oct-24 14:22 SINGAPORE (ICIS)–Saudi Aramco chief Amin Nasser on Monday called for a new energy transition plan that considers the needs of all countries, specifically those in Asia and the broader Global South, amid growing oil demand. Asia ACN regional producers bullish on tighter supply; India’s BIS deadline nears By Corey Chew 22-Oct-24 11:07 SINGAPORE (ICIS)–Asia acrylonitrile (ACN) prices saw a recent uptrend the past two weeks, with plants of key regional producers in Taiwan and South Korea under planned maintenance. PODCAST: Macroeconomic pressure continues to weigh on Asia recycling sentiment By Damini Dabholkar 22-Oct-24 17:13 SINGAPORE (ICIS)–The short-term demand outlook for recycled polymers from Asia remains sluggish especially for low-value grades, mainly due to poor economics and brand users’ preference of cheaper virgin plastics. Emerging Asian economies’ strong growth to subside amid China slowdown – IMF By Nurluqman Suratman 23-Oct-24 12:07 SINGAPORE (ICIS)–Emerging Asian economies are expected to see strong economic growth subside, partly due to a sustained slowdown in China, the International Monetary Fund (IMF) said on Tuesday. PODCAST: Asia methanol impacted by geopolitical uncertainty, supply cuts expected in Q4 By Damini Dabholkar 24-Oct-24 23:00 SINGAPORE (ICIS)–Asian methanol markets in recent weeks were driven more by sentiment than changes in fundamentals as participants respond to an escalation of the conflict in the Middle East. However, some supply changes in coming months are expected to alter the landscape in Q1 2025. Supply glut casts shadow over Asia PC market recovery By Li Peng Seng 25-Oct-24 13:08 SINGAPORE (ICIS)–China's polycarbonates (PC) spot demand has remained sluggish as ample supplies have kept purchases on a need-to basis, and this trend will persist through yearend.

28-Oct-2024

SAO PAULO (ICIS)–The financial week in Latin America ends with the confirmation that its two largest economies’ performance is taking diverging paths as Brazil's unexpected healthy growth brings to the fore overheating fears, while Mexico's slowdown is proving harsher than previously thought. Healthier-than-expected growth in Brazil occurs against the backdrop of a fast-slowing Mexican economy, where political woes at home and in the US, due to the upcoming presidential election, are taking a toll on output, expected by the IMF below 2% in both 2024 and 2025. This week, official figures in Mexico confirmed the slowdown in August, compared with July, with output in most subcategories, including petrochemicals-intensive sectors such construction, falling. Output was still up on a year-on-year basis. The latest IMF GDP growth forecasts published this week were another jag of cold water on Mexico’s new Administration led by Claudia Sheinbaum, with the Washington-based body expecting output to expand just by 1.5% in 2024, down from its previous forecast for 2.2% growth. The IMF added output would slow further in 2023, growing at 1.3%. See bottom table for data on the main Latin American economies' GDP growth and inflation forecasts. Meanwhile, Brazil’s economic performance has outpaced all forecasts in 2024, at home and abroad, and is likely to end up expanding by 3% or slightly more this year, which is causing unexpected price rises and a reversal of the monetary policy easing started a year ago: interest rates are due to stay higher for longer there. MEXICO WOES INCREASE AS US POLL NEARSA cynical observer of North American politics may say that the most important election for Mexico is not its own, which was held in June and returned to Parliament a historic supermajority for the center-left, statist Morena party of President Claudia Sheinbaum. The most important poll for Mexico, the argument goes, would be that of the US, Mexico’s main clients for around 80% of goods the country manufactures. The statement could ring true from 2025 onwards if Republican candidate Donald Trump is voted back into the White House, with promises to implement sweeping import tariffs hikes, including for Mexico and Canada, the two countries sharing the USMCA free trade zone with the US in North America. As opinion polls remain tight in the big Mexican neighbor, uncertainty south of the border increases, and business expansion plans are put on a wait-and-see mode. The peso (Ps) has weakened by nearly 15% against the dollar year to date, and it would be expected to take a direct hit on 6 November if the morning after the election Trump is voted back into the White House, according to analysts. On Friday, the peso was trading at $1:Ps19.90, a sharp depreciation from the $1:Ps16.97 exchange rate it started the year trading at. Despite the peso’s depreciating, making dollar-denominated imports more expensive for Mexican companies and households, the overall economic slowdown is continuing to cause a fall in inflation. This week, Mexico’s statistics office said the much-followed inflation figure for the first fortnight of October had continued falling, leaving still room for the central bank – known as Banxico – to lower interest rates in its upcoming monetary policy committee (MPC) meeting in November. The headline annual rate of inflation stood in the first half of October at 4.7%, practically flat month on month, with the breakdown of the data showing non-core inflation fell to 9.7% year on year, while core inflation – which excludes more volatile prices for food and energy – was broadly unchanged at 3.9%, year on year. However, 5 November could be a before-and-after day for Mexico’s economy, with its currency the first to react to a potential Trump return to the White House. “The fall in Mexican core services inflation in the first half of October in principle gives Banxico space to press ahead with another 25bp [basis points] rate cut next month, but much will hinge on the outcome of the US election,” said analysts at Capital Economics this week. Mexico’s main interest rate benchmark was set in September at 10.50%. “An abrupt move down in the peso could put the easing cycle on pause … The outcome of the US election may well change the outlook for monetary policy in Mexico, especially if a Trump victory leads to a sharp sell-off in the peso. This would probably prompt Banxico to pause (or even reverse) its easing cycle.” Adding to the doom and gloom, US credit rating agency Fitch said on Friday that, as well as changes to trade policy, a Trump Administration could also have negative implications for Mexicans living in the US and the remittances they send home, which are a key income source for millions of Mexicans to make ends meet. “Central American countries in particular will be highly vulnerable to policy changes as their economies rely heavily on remittances … Immigration tightening and a more confrontational posture from the US towards Mexico and Central American countries could emerge should former president Donald Trump be re-elected,” said Fitch. “While implementation remains uncertain, his administration has increasingly indicated a willingness to significantly restrict border crossings and materially increase deportations of undocumented migrants." Remittances do matter, especially for smaller Central American countries. According to Fitch’s calculations, remittances in El Salvador and Nicaragua account for more than 30% of their GDP. In Mexico, remittances’ weight has risen from 2% in 2014 to the current 3.5%. Due to its large economy, the size of Mexicans’ remittances stood in 2023 at just over $63 billion – a figure larger than several smaller Latin American countries’ annual output. Fitch added that a Democratic victory in the election would mean policy continuity, not least because candidate Kamala Harris and Vice President has overseen immigration policy in the past four years. However, Democratic proposals show how the immigration debate has tilted towards the right, with some proposed restrictions unthinkable just a few years back. “The administration has voiced the intention to push for a bipartisan law that failed to pass in 2024 after Republican objection. The bill aims to close loopholes in the asylum process, give the president greater authority to shut the border when crossings are high, and limit immigration parole, which allows migrants to temporarily enter the US,” said Fitch. BRAZIL BOOM HAS UNWANTED SIDE EFFECTSAs previously analyzed in this article earlier in October, Brazil’s economy has beaten the odds in 2024, with its GDP expected to expand by more than 50% than most forecasts said at the beginning of the year – from below 2% to potentially slightly above 3%. This success is coming accompanied by a series of challenges, not least inflation and interest rates, which remain high. That fact has made Latin America’s largest economy to reverse course on easing monetary policy, on fears that lower borrowing costs would be set to spur already healthy consumption and feed inflation higher. The president of the Banco Central do Brasil (BCB), Roberto Campos Neto, said earlier this week inflation risks remained skewed to the upside. His colleague at the central bank’s board in charge of international affairs, Paulo Picchetti, reiterated the bank’s commitment to continue bringing inflation down, even if that implied making consumption more expensive via higher borrowing costs. "We chose to be completely data-dependent [on next moves], with a clear commitment to do what is necessary in terms of monetary policy to make inflation converge to the target," said Piccheti, quoted by news agency Reuters. Brazil’s central bank has the mandate to keep price rises at around 3%. Brazil’s data for the H1 October inflation continued showing price rises widening, compared with September, with the annualized rate at 4.5%, up from 4.1%. “A lot of the rise can be pinned on a further rebound in food and electricity inflation [caused mostly by extreme weather events, with a severe drought hitting the country in August and September]. Core services inflation dropped which, on the face of it, is encouraging,” said Capital Economics. “But that was driven by volatile items, such as airfares. We estimate that the central bank’s measure of underlying core services inflation, which strips out such items, ticked up last month. Taken together with comments from BCB policymakers warning about strong services inflation and unanchored inflation expectations, a step up in the pace of rate hikes from 25bp to 50bp is looking increasing likely.” Brazil’s main interest rate benchmark, the Selic, currently stands at 10.75%. IMF forecasts (in % change) GDP growth 2023 GDP growth forecast 2024 GDP 2025 growth forecast Inflation 2023 Inflation forecast 2024 Inflation forecast 2025 Brazil 2.9 3.0 2.2 4.6 4.3 3.6 Mexico 3.2 1.5 1.3 5.5 4.7 3.8 Argentina -1.6 -3.5 5.0 133.5 229.8 62.7 Colombia 0.6 1.6 2.5 11.7 6.7 4.5 Chile 0.2 2.5 2.4 7.6 3.9 4.2 Peru -0.6 3.0 2.6 6.3 2.5 1.9 Ecuador 2.4 0.3 1.2 2.2 1.9 2.2 Venezuela 4.0 3.0 3.0 337.5 59.6 71.7 Bolivia 3.1 1.6 2.2 2.6 4.3 4.2 Paraguay 4.7 3.8 3.8 4.6 3.8 4.0 Uruguay 0.4 3.2 3.0 5.9 4.9 5.4 Latin America and the Caribbean 2.2 2.1 2.5 14.8 16.8 8.5 Focus article by Jonathan Lopez

25-Oct-2024

SAO PAULO (ICIS)–Spanish chemicals sales are expected to rise in 2024 by 4.8%, compared with 2023, to €86.5 billion while output is expected to expand by 7.1%, the country’s chemicals trade group Feique said this week. The enviable figures for chemicals are expected to be repeated in other manufacturing sectors as well as in the services sector, which makes up around 80% of Spain’s economy and includes its powerful tourism industry. For 2025, Feique forecasts chemicals sales will rise by 4.2%, compared to 2024, pushing the country’s chemicals sales over the €90 billion mark for the first time. Output is expected to rise by 3.2% next year. As far as the economy’s ups and downs, the 2010s will be a decade most Spaniards will want to turn the page on after the country’s banking sector had to be bailed out by the EU in the hangover of its housing bubble, with the consequent strict austerity policies which were the only game in town at the time. Spaniards can feel a bit more upbeat about the 2020 as its equator approaches, after a start which made many feared a lost decade was on the cards amid a health emergency that put the country under one of Europe’s strictest lockdowns, in a place where being outside is the norm, and with tourism brought to its knees. It was not to be. Society’s mental health may still be reeling, and may do so for years to come, but the economy’s health is evident and, moreover, the recovery is reaching sectors outside services, creating hopes the much-needed diversification in the economy might finally be taking place. Just like after its accession to the EU in the 1980s, generous and well-targeted subsidies from the 27-country bloc are propping up the green economy and, with it, manufacturing. However, the motor of the recovery has once again been tourism: more than 80 million people visit Spain annually, a trend increasing post-2020. Much has been written about how after the pandemic consumers are prioritizing spending on ‘experiences’, rather than goods: Spain has developed over the past 50 years one of the world’s strongest tourism sectors. Meanwhile, the booming and fiscally prudent Germany of the 2010s has in the space of just two years turned into the sick man of Europe as it pays a high price for its decades-long geostrategic error of over depending on Russian natural gas, an error which has hit the chemicals industry hard. The IMF said this week Germany’s output in 2024 is expected to be flat, compared with 2023, a year which was already hard on Germany as the peak of the energy crisis sank in. Spain’s healthy macroeconomic and chemicals sector-specific figures come against a backdrop of political woes. Spain has not been immune to the current European trend of strong and corrosive polarization. Since July 2023, the center-left government has been navigating in a minority in Parliament. Pedro Sanchez’s cabinet minority has raised the prospects it may not be able to pass a Budget for 2025, the most important vote annually in Madrid’s Congreso de los Diputados. While under Spanish law, the cabinet could extend this year’s Budget into next, its inability to pass a new Budget to implement its recent electoral promises would weaken it greatly. Meanwhile, passing a Budget for 2025 before the year-end would come to guarantee the cabinet’s survival for at least another two years – if needed, it could expand 2025’s budget into 2026. The term is due to end in 2027. While the economy booms, Spanish politics is suffering a Latin Americanization process – experts’ theory that political instability and fragmentation, leading to weaker Administrations, is the new norm after the hangover of the 2008 financial crash came to end the previous bi-partisan system of alternance in office. ‘ROCKET’ DOMESTIC ECONOMY IS CHEMICALS GAINThis week, the IMF raised up its GDP growth forecast for Spain in 2024 to 2.9%, up from its July forecast of 2.4% and one percentage point above its forecast a year ago. In 2025, Spain’s output is expected to expand by 2.1%. Both years, the country’s growth is set to be well above that of the eurozone’s two largest economies, Germany and France. IMF GDP GROWTH FORECASTSWorld and main European economies 2024 Versus July forecast 2025 Versus July forecast World 3.2 0.0 3.2 -0.1 Germany 0.0 -0.2 0.8 -0.5 France 1.1 0.2 1.1 -0.2 UK 1.1 0.4 1.5 0.0 Italy 0.7 0.0 0.8 -0.1 Spain 2.9 0.5 2.1 0.0 The healthy macroeconomic figures are filtering down nicely to the chemicals sector, still feeling the scars of the falls in sales and output in 2023, after years of relentless growth except for 2020. Strong domestic demand and, in 2024, a recovery in exports – which account for around two-thirds of Spain’s chemical sales have allowed the sector to weather the storm better in peers in other major eurozone economies. In the post-pandemic instability, Spanish chemicals sales rose sharply in 2021 and 2022, as prices globally shot up, but fell by nearly 7% in 2023 as prices came down, with output declining by 0.7% compared with 2022. In 2024, the story has been one of growth again, as already forecast in an interview with ICIS in July by Feique’s director general. “Prices are recovering from the lows we saw in 2023 – I think by the end of the year selling prices on average should reach pre-crisis levels. Demand at home is holding up strongly and exports remain healthy,” said Juan Labat at the time. “In Spain, production of basic chemicals is recovering strongly, and this is important because output in that subgroup had fallen the most, down 11% in 2023, but it is up 8% year to date [to July]. Practically all sectors are performing well – paints, personal care, pharmaceuticals… Considering the economics of countries around us, the Spanish economy is bit of a rocket.” For comparison, chemicals sales in Germany, the largest chemicals producer in Europe, stood at €229.3 billion in 2023, in a powerful manufacturing sector which employs 470,000 workers. For comparison again, Spain’s chemicals companies are expected to close 2024 with a 250,000-strong workforce. However, the headline positive figures hide underperformance in key sectors, according to Feique’s President, Teresa Rasero, who is also the board’s chair at Spain’s subsidiary of French industrial gases major Air Liquide. This week, Feique’s annual assembly re-elected her for the post for another year. Rasero said that while consumer chemicals, specialties, and health products are growing healthily, basic chemicals are still struggling with high energy costs, worsened by Spain’s “non-existent or very low” public support for energy-intensive industries, compared with peers such as Germany or France. In the EU jargon, this is called the carbon emission rights expenses. Feique said that figure in Spain in 2024 is expected to stand at a mere €300m annually in coming years, well below the support which neighboring countries have deployed, which runs into the billions. “[Emissions expenses compensation is] non-existent or very low compared to the few countries that have established a comparable regime. The problem is that it is precisely the production of basic chemicals or other similar energy-intensive industrial sectors that are essential to maintaining our strategic autonomy,” said Rasero. “We need more competitive energy prices and to accelerate the decarbonization processes, which are key aspects for the future of the European productive economy.” Feique’s president said the €300 million support in Spain is set to fall very short in a chemicals sector which would need €3 billion annually in investments to decarbonize between 2025 and 2050, according to the trade group’s forecast – a whooping €75 billion which will hardly be realized if all the effort is to come just from the private sector. The trade group said the annual €3 billion would need to be distributed in €1.7 billion for capital expenditure (capex) to build and modernize chemicals plants; €850 million for operational adjustments during technological transitions; and €450 million for maintenance and regulatory compliance. The daunting task is clearly showed in the headline figure of what the industry must achieve: Spain’s chemicals must reduce 12.4 million tonnes of annual CO2 emissions by 2050. DECARBONIZATION FUND: WHO PAYS?The Spanish cabinet has spent months negotiating a bill with employers and employees representatives an industrial policy, with both sides supporting the overall bill’s targets. With the decarbonization challenge hurrying along, Spain may be finally coming to terms with the fact that its weakened manufacturing sectors need revival, so it is able to weather storms such as the 2020 shock, when airports, hotels, and beaches remained empty. Spain’s manufacturing accounts for around 12% of its GDP. Economists’ mantra about a healthy economy being one in which 20% of its output comes from manufacturing only rings true, among the EU’s major economies, in Germany, after decades of delocalization and deindustrialization in most of Europe. Spain’s attempt to pass an industrial policy worth the name is also a bit of a novelty: the country’s policymakers had not sat to negotiate a similar initiative since the 1980s, when the country seemed to confidently put most of its eggs in the tourism basket, Barcelona’s 1992 Olympics catalyst included. With that industrial policy bill expected to pass, Feique is proposing to include in its implementation the creation of a decarbonization fund. “[The Decarbonization Fund could be financed with] at least 50% of the income from emission rights, which last year reached €3.5 billion. We estimate the fund should aim for a figure close to €2.5 billion annually, which would help guarantee the continuity of our country's strategic industrial assets in a competitive manner," said Rasero. In the past years, Feique’s executives have said, publicly but also privately, that the cabinet has been prone to listen to the trade group’s lobbying, giving an access to the corridors of power it lacked in the past, as the cabinet aims to expand and improve manufacturing employment. Taking advantage of that, Feique is confident the bill will include proposals to implement carbon contracts which would resemble those already in place in EU countries such as Germany and the Netherlands – another chemistry hub due to its location – as well as Denmark. “Our objective is that carbon contracts for difference [compensation to energy-intensive sectors] can be applied to essential technologies for decarbonization such carbon capture, utilization, and storage (CCUS), electrification, hydrogen, and renewable gases, oriented both to supply and demand requirements, when necessary,” said Rasero. SPAIN POLICIES, EU-WIDE DECISIONS The 27-country EU remains, despite recent setbacks and delays to key policies, the world’s self-declared champion in the effort to decarbonize, a move which could not come sooner in a region which mostly lacks all the conventional energy sources that have fueled the modern industrial era. Whether the bloc and the world at large are able to decarbonize in such a relatively short period of time – target for 2050 in the EU, 2060 in countries such India or China – remains to be seen. However, for Spain specifically, climate change deceleration and adaptation are set to be key challenges in years to come, as increasing and more intense heatwaves and droughts hit its powerful agricultural sector, as well as human health. However, certain wave against urgent decarbonization targets is gaining traction in the EU, fueled by climate change skepticism related to the loss of jobs. The trend is reaching the EU’s capital Brussels, where policymakers are considering delays in the targets. Turning upside down an industrial model created over the past two centuries in just two decades was always going to be a challenge, to put it mildly. Industry players in all sides – employers and employees – around the EU have, have been lobbying hard for some of those delays, which will invariably increment regulatory burdens and, most likely, costs. In July, Feique’s Labat he said the EU’s new approach to industry was good news, but added finetuning is needed if the EU is serious about safeguarding its diminished remaining industrial fabric. For example, he was very critical of the many changes to the deadlines for phasing out some polluting technologies, which only contribute to create uncertainty for many businesses, he said, arguing companies do want to go greener but are fearful of failing along the way if the regulatory environment is unstable. “What we saw, for example, with Green Deal targets for certain technologies to be phased out by 2035, which soon after the Deal’s passing were changed to 2033: that is simply not serious and the opposite of legal certainty,” said Labat. “We want to go greener, but it would help if the authorities understood the huge undertaking this will mean. And, obviously, companies in our sector don’t work out their capex [capital expenditure] plans with just the short or medium term in mind: those assets are planned for several decades.” In another interview with ICIS in July, the chemicals lead at the country's main trade union, Comisiones Obreras (CCOO), said the industry's workers do see an opportunity in the EU Green Deal, rather than a threat, but added that tight timeframes risk jeopardizing that support. “We have had cases, like in automotive, where obviously adapting a plant producing combustion engine vehicles to produce EVs [electric vehicles] is an expensive and time-consuming process: the authorities want us to go faster than we could possibly go,” said Daniel Martinez at the time. “And, still on EVs, the infrastructure across the EU – with a few exceptions – remains far from what is needed for a full transition towards electric mobility. We need to be realistic here.” All in all, he concluded, moves by some political groups in the EU to practically dismantle the Green Deal are not welcomed by the chemicals industry as a whole, which is set to benefit from the green transition, he said, describing himself as a “techno-optimistic.” This week, Rasero said the EU’s current music about industry is starting to rhyme, after the recent publication of official reports by Enrico Letta and Mario Draghi, showing a potentially competitive pathway towards an EU’s decarbonized industry, as well as the approval of the EU's Strategic Agenda 2024-2029. She also mentioned the chemical industry’s own Declaration of Antwerp. While fully supporting decarbonization efforts by 2050, the private-led initiative was mostly an emergency cry for extended state support if the endeavor is to be successful. “The EU must propose an industrial model that is simultaneously oriented towards sustainability and competitiveness, and which always keeps in mind the objective of reducing the costly and complex regulatory framework and the administrative burdens that flood us with inefficiencies,” said Rasero. “The model must serve to reduce the cost of energy in the EU, guarantee access to critical and strategic raw materials, and effectively transform industrial sectors while respecting technological neutrality.” SPAIN CHEMICAL SALESTurnover in thousand million euros Annual change in % Source: Feique Insight by Jonathan Lopez

25-Oct-2024