TORONTO (ICIS)–Chemtrade Logistics hopes that a freight rail disruption in Canada, should it occur, will be short, the top executives of the Toronto-based industrial chemicals producer said in a webcast earnings call on Thursday. Meanwhile, the country’s federal labor minister rejected a call for binding arbitration to settle the rail labor dispute that has been looming over Canada’s chemicals and other industries for months now. Canada’s two major railroads – Canadian Pacific Kansas City (CPKC) and Canadian National (CN) – have said that they may start to lock out workers on 22 August if no progress is made on reaching new collective agreements. Ahead of a potential lockout, the railroads already started to embargo certain shipments. While hoping that any rail disruption will be short, Chemtrade CEO Scott Rook and CFO Rohit Bhardwaj would not speculate how long a disruption may last or how long the company will be able to operate without rail services. CHLORINE Chemtrade is beginning to see impacts “even as of today” as poison inhalation hazards (PIH) materials are no longer moving on rail, Rook noted. The PIH issue, in particular chlorine for use in drinking water treatment, was being discussed at the highest level of governments this week in both Canada and the US, Rook said, adding that Chemtrade thinks that authorities will consider chlorine for drinking water as “essential”. Chemtrade’s North Vancouver chloralkali plant plays an important role in ensuring supplies of liquid chlorine for use in safe drinking water in both western Canada and the US West, Rook stressed. The plant produces more than 40% of all available liquid chlorine in Canada, and regionally it produces more than 70% of the liquid chlorine used to treat drinking water in Canada’s British Columbia and Alberta provinces, he said. A declaration of chlorine as essential, however, would contradict last week’s ruling by  the Canada Industrial Relations Board (CIRB) that no essential freight rail activities needed to be maintained in case of a rail strike or lockout. Canada’s chemical and other industries had urged the tribunal to order that minimum rail services be maintained during industrial action to ensure the continued rail delivery of essential goods such as fuels, food or chlorine for water-treatment facilities. During the CIRB process the right to a legal strike or lockout was suspended. CUSTOMERS STOCKED UP AHEAD OF DISRUPTION The market has been expecting a rail disruption in Canada for several months and customers therefore raised their inventories in anticipation of a disruption, the executives said. The volumes customers brought forward contributed “a meaningful number” to Chemtrade’s stronger than expected Q2 results, CFO Bhardwaj said. The company raised its guidance for 2024 full-year adjusted earnings before interest, tax, depreciation and amortization (EBITDA) to Canadian dollar (C$) 430-460 million (US$314-336 million), from previous guidance of C$395-435 million. The new guidance assumes no rail disruption at its upper point but some disruption at the mid- and lower points, Bhardwaj said. Even if there is no strike or lockout, the looming industrial action is causing disruptions in supply chains as companies need to prepare, he added. Canadian chemical producers rely on rail to ship more than 70% of their product, with some exclusively using rail, while in the fertilizer industry about 75% of all fertilizers produced and used in Canada is moved by rail. The following table by the American Association of Railroads (AAR) shows Canadian freight rail traffic, including chemicals, for the week ended 10 August and the first 32 weeks of 2024: In recent earnings calls, midstream energy firms Pembina and Keyera, as well as fertilizer major Nutrien and others raised the looming rail disruption as a concern, and railroad CN reduced its 2024 earnings guidance, citing the impact of the labor uncertainty. MINISTER DECLINES TO INTERVENE Meanwhile, Canada’s Federal Labor Minister Steven MacKinnon said on Thursday that he will not accede to a request by CN to intervene and refer the dispute to the CIRB for binding arbitration. “The Government firmly believes in the collective bargaining process and trusts that mutually beneficial agreements are within reach at the bargaining table,” the minister said. (US$1 = C$1.37) With additional reporting by Adam Yanelli Thumbnail photo source: Chemtrade Logistics

HOUSTON (ICIS)–Prices for ethane, the predominant US feedstock used to make ethylene, have fallen this month to levels not seen since the pandemic, and they will likely remain depressed until colder weather arrives later in the year. Since falling below 12 cents/gal, ethane prices have risen by a few cents as some crackers have restarted. If another hurricane disrupts US exports of LNG, ethane prices could decline further with domestic natural gas prices. US ethane supplies should continue growing because of rising oil production. INEXPENSIVE ETHANE SUPPORTS ELEVATED PE MARGINSAt the least, low ethane costs will help US polyethylene (PE) producers maintain operating rates at profitable levels regardless of the strength of demand. US ethylene producers enjoy a cost advantage because they predominantly rely on ethane as a feedstock, and its price tends to rise and fall with that for natural gas. Much of the world relies on oil-based naphtha, which is usually more expensive. From a purely cost perspective, lower ethane costs allowed for integrated PE margins to increase in July, and margins may rise again in August on further reductions in integrated costs, said Harrison Jacoby, director of PE for ICIS. Because of the cost advantage of US producers, they have been able to maintain exports despite the global glut of PE. Recently, PE exports from the US need to make up 45% of total sales for domestic producers to maintain operating rates of 90%, as domestic demand has been essentially flat for many years,  Jacoby said. Inexpensive feedstock allows them to be competitive in virtually every market globally, supporting high operating rates. ANOTHER HURRICANE COULD LOWER ETHANE PRICESOne of the reasons why ethane prices fell so sharply is because Freeport LNG Development shut down its LNG operations in Freeport, Texas, because of Hurricane Beryl. The site is a key LNG export terminal in the US, and the shutdown of its operations back up natural gas supply, which depressed prices for domestic natural gas and ethane. The same scenario could repeat itself if another hurricane shuts down one of the LNG terminals on the coasts of Texas or Louisiana. Hurricane season does not peak until later in August and September, and meteorologists are expecting an active year. If a hurricane shuts down a cracker, that would reduce ethane demand, further depressing prices. WEST TEXAS GAS PRICES HOVER AROUND ZEROAnother factor depressing ethane prices is excess natural gas at the Waha hub in west Texas. The oil wells in west Texas also produce a lot of natural gas, and their output can overwhelm the pipeline capacity to ship it out of the region. Because of insufficient pipeline capacity, gas prices at the Waha hub have frequently fallen below zero. Ethane is extracted from raw natural gas. If any ethane remains in the gas stream, it is sold as fuel. If that happens at Waha, then producers would be paying a counterparty to market their supply. To avoid this, companies have been extracting as much ethane as possible. Ethane extraction also frees up space in the pipelines in west Texas, allowing them to take away more natural gas out of the region. ETHANE PRICES MAY RISE LATER IN THE YEARWaha prices will likely continue to hover around zero until the new Matterhorn Express pipeline starts up later this year. The Matterhorn pipeline will allow more natural gas to be shipped out of west Texas. This will allow gas prices at Waha to climb, which boosts ethane’s value to fuel in the region, a factor that could raise prices. As the year progresses, colder temperatures should increase demand for natural gas. That should raise gas prices, which would also push ethane prices higher. The ICIS forecast for ethane reflects this. It shows ethane prices rising as the year progresses. NEW PIPELINE TO TAKE AWAY MORE GAS FROM PERMIANThe midstream industry is already planning another pipeline to take away additional natural gas out of the west Texas. Targa, WhiteWater, MPLX and Enbridge have made a final investment decision (FID) to build the Blackcomb Pipeline, which will ship up to 2.5 billion cubic feet/day of natural gas from the Permian Basin in west Texas to the Agua Dulce area in south Texas. Operations should start in the second half of 2026. NEW MIDSTREAM PROJECTS TO RAISE ETHANE SUPPLIESThe new Blackcomb pipeline is the latest new project announced by midstream companies. They are continuing to build new natural gas processing plants. These plants remove impurities and natural gas liquids (NGLs) from raw natural gas. The processed gas is then ready to be burned as fuel or exported as LNG. The NGLs are sent to fractionators, which separate the individual components into purity products like ethane and propane. The following table shows fractionators that were started up or that are being developed. Company Project Type Capacity Units Location Startup Energy Transfer Frac IX Fractionator 165,000 bbl/day Mont Belvieu Q4 26 Enterprise Fractionator 14 Fractionator 195,000 bbl/day Mont Belvieu H2 2025 Gulf Coast Fractionators JV * GCF Fractionator Fractionator 135,000 bbl/day Mont Belvieu Q3 24 ONEOK MB-6 Fractionator Fractionator 125,000 bbl/day Mont Belvieu year end 24 Targa Train 9 Fractionator Fractionator 120,000 bbl/day Mont Belvieu in service Targa Train 10 Fractionator Fractionator 120,000 bbl/day Mont Belvieu Q1 25 Targa Train 11 Fractionator Fractionator 150,000 bbl/day Mont Belvieu Q3 26 * GCF is restarting after being idled in January 2021. The JV is made up of Targa, Phillips 66 and Devon Energy Source: corporate announcements The following table shows natural gas processing plants that were started up or that are being development. Company Project Type Capacity Units Location Startup Delek not available Gas Plant 110 million cubic feet/day Delaware H1 2025 Durango Midstream Kings Landing, Phase I Gas Plant 200 million cubic feet/day Eddy County, NM Q4 24 Durango Midstream Kings Landing, Phase II Gas Plant 200 million cubic feet/day Eddy County, NM not available Energy Transfer Badger Gas Plant 200 million cubic feet/day Delaware mid 25 Energy Transfer Permian processing expansions* Gas Plant 200 million cubic feet/day Permian Q4 24 to Q1 25 Enterprise Orion Gas Plant 300 million cubic feet/day Midland H2 25 Enterprise Mentone West Gas Plant 300 million cubic feet/day Delaware H2 25 Enterprise Mentone West 2 Gas Plant 300 million cubic feet/day Delaware H1 26 Enterprise Mentone 3 Gas Plant 300 million cubic feet/day Delaware in service Enterprise Leonidas Gas Plant 300 million cubic feet/day Midland In service MPLX Preakness II Gas Plant 200 million cubic feet/day Delaware in service MPLX Secretariat Gas Plant 200 million cubic feet/day Delaware H2 25 MPLX Harmon Creek II Gas Plant 200 million cubic feet/day Marcellus in service Targa Greenwood Gas Plant 275 million cubic feet/day Midland Q4 23 Targa Greenwood II Gas Plant 275 million cubic feet/day Midland Q4 24 Targa Wildcat II Gas Plant 275 million cubic feet/day Delaware Q2 24 Targa Roadrunner II Gas Plant 230 million cubic feet/day Delaware in service Targa Bull Moose Gas Plant 275 million cubic feet/day Delaware Q2 25 Targa Pembrook II Gas Plant 275 million cubic feet/day Midland Q4 25 Targa Bull Moose II Gas Plant 275 million cubic feet/day Delaware Q1 26 Targa East Pembrook Gas Plant 275 million cubic feet/day Midland Q3 26 * GCF is restarting after being idled in January 2021. The JV is made up of Targa, Phillips 66 and Devon Energy Source: corporate announcements Insight article by Al Greenwood Thumbnail shows PE pellets, which are made with ethylene. Image by ICIS

SINGAPORE (ICIS)–China’s industrial output growth in July slowed to a four-month low of 5.1%, aggravating concerns about continued manufacturing slowdown, with a growing set of data suggesting the world’s second-largest economy is struggling to gain momentum. H2 industrial production momentum to soften further July retail sales grow 2.7% year on year Property prices extend decline despite government measures Official manufacturing purchasing managers’ index (PMI) remained in contraction mode for the third month in July, while exports weakened. “This slowdown was foreseeable given the last few months of weak PMI data,” said Lynn Song, chief economist for Greater China at Dutch banking and financial information services provider ING. “As export demand starts to slow and tariffs come into effect, the momentum may moderate further,” Song said. In July, China’s exports rose by 7.2% year on year, a slowdown from June’s 8.6% growth due in part to the EU’s imposition of higher import tariffs on Chinese electric vehicles. The new duty ranges from 17.4% to 37.6% and took effect on 5 July. The July official manufacturing PMI was 49.4, below the 50 threshold for expansion. Industrial production has been one of the key drivers for growth in the first half of 2024, but momentum looks to be softening in the second half of the year, Song said. In July, China’s auto manufacturing expansion slowed to 4.4% year on year, a marked decline from the 9.0% year-to-date growth and a far cry from the double-digit gains of previous years, he noted. Auto manufacturing growth has now fallen below the overall industry growth rate for the first time since May 2022, signaling a potential turning point for the sector, according to Song. “Combined with a more challenging base effect, we expect that policies to boost other areas of the economy will be needed if China is to achieve the 5% growth target for the year,” he added. In contrast, China’s retail sales – a gauge for consumption – showed signs of revival last month, growing by 2.7% year on year, accelerating from the 2% growth in the previous month, official data showed. This uptick followed a series of interest rate cuts implemented by the People’s Bank of China (PBoC) throughout July. The cut in central bank’s short-term seven-day reverse repo interest rate to 1.70% was the first rate cut since August 2023 and came on the heels of a closed-door meeting of the Communist Party’s Central Committee, hinting at a coordinated effort to stimulate economic growth. China’s Q2 annualized GDP growth came in at 4.7%, falling short of expectations, re-igniting concerns that the government’s full-year growth target of around 5% may not be met. This has prompted renewed calls for policymakers to implement additional stimulus measures to boost the economy. “The economy is on the course for a weak start to H2,” Japan’s Nomura Global Markets Research said in a note. “Both the Caixin and official manufacturing PMIs indicate a broad slowdown in manufacturing activity, weighed on by sluggish domestic demand, as the property correction persists,” it said. “We expect more meaningful policy measures after September, when concerns over the growth slowdown may become more elevated.” The Chinese government has taken gradual steps to stabilize the housing market and revitalize consumer demand but has refrained from launching large-scale stimulus packages. Chinese President Xi Jinping has shifted shifted focus towards high value-added industrial growth to bolster China’s economy amid a three-year property slump that has negatively impacted household consumption and investor confidence. However, China’s property prices continued to decline in July. New home prices last month dipped 0.65% month on month, largely unchanged from June’s 0.67% drop, data from the NBS showed. Secondary market prices in July also fell, slipping by 0.80% over the same period. “It is increasingly looking like the property market will continue to need more policy support to establish a bottom,” ING’s Song noted. Focus article by Nurluqman Suratman

SINGAPORE (ICIS)–ICIS is introducing a new monthly domestic polypropylene (PP) block copolymer price index for South Korea starting from 16 August. This spot assessment on a delivered (DEL) basis is ICIS’ first monthly index dedicated to the South Korean market. The new quote will track locally traded PP block copolymer resins with melt index (MI) between 30 to 60 that are mainly used for automotive applications. The launch of the quote is motivated by calls for more information and greater clarity on the domestic market conditions from South Korea’s automotive industry as local prices deviate from export values. Previously, market participants have been using CFR (cost & freight) CMP (China Main Port) and prices of upstream chemicals like naphtha’s, as reference points for domestic discussions. “ICIS has developed an index that is relevant for the South Korean domestic market,” ICIS Asia managing editor Peh Soo Hwee said. “This is in line with changing industry developments as taking direction from overseas markets such as China is no longer fit-for-purpose given the very different dynamics in Korea,” she said.

HOUSTON (ICIS)–Weak growth in the world’s population will slow economic growth, tighten labor markets and likely prolong the global glut in polyolefins, according to ICIS analysts. For polyethylene (PE), around 135 billion lb (61 million tonnes) of additional PE capacity should start up from 2019-2028, versus demand growth of 87 billion lb during the same period, said Harrison Jacoby, ICIS director of PE. He made his comments at ICIS networking briefings in Houston and New York. The typical world-class PE plant produces 1 billion lb/year, Jacoby said. That represents an excess of 48 PE plants. The demand gap is similarly stark for polypropylene (PP). About 50 million tonnes of additional PP capacity should start up from 2019-2028, versus demand growth of 30 million tonnes, said Ramesh Iyer, director of polymers Americas at ICIS. The typical global scale plant produces 1 billion lb/year, he said. That represents an excess of about 45 global plants. IT COULD TAKE YEARS TO GROW OUT OF THE GLUTWithout plant shutdowns, it could take several years for the world to grow out of its current supply glut. Demographers expect the world’s population will peak sooner and at a lower level than estimates from five to 10 years ago, said Kevin Swift, ICIS senior economist for global chemicals. In about 20 countries, populations are declining, he said. Some countries in Latin America are tracking the demographic trends of Europe at a lag. In China, the biggest market for PE and PP, weak demographics are compounding the effects of youth unemployment, low consumer confidence and the bust in the property market, Swift said. He expects actual economic growth in China to be stagnant. Other economists typically subtract three to five points from official Chinese GDP statistics “The economy is growing slowly, if it all,” he said. In the US, Swift warned that labor markets will likely remain tight because of slower population growth. He noted that for every two Baby Boomer workers who are retiring, one member of the Generation Z cohort will join the labor market. Population growth will be concentrated in countries in the Africa, the Middle East and southeast Asia regions, Swift said. LOWER INFLATION RAISES PROSPECTS OF RATE CUTSIn the US, Swift noted some signs of improvement. One measure of inflation, the producer price index (PPI), came in below expectations. Another measure, the consumer price index (CPI) came in at expectations. Both readings greatly increase the likelihood that the Federal Reserve will start lowering its benchmark interest rate at its next meeting in mid-September. The expectations of a rate cut have already started to lower mortgage rates on home loans, which should boost sales by making housing more affordable. Ultimately, that will trickle down to demand for plastics and chemicals used in house construction and in home furniture and appliances. Longer term, members of the millennial demographic cohort are reaching their prime age to buy homes, Swift said. That, combined with lower rates, should provide a tremendous tailwind for the housing market for the rest of the decade before reversing itself. LIKELY PLANT SHUTDOWNSAny growth in the US will not alleviate what will likely be the need to rationalize polyolefin capacity. The magnitude of the global supply glut is too large. Some producers have already started to rationalize higher cost PE and PP capacity, and Jacoby and Iyer expect the trend to continue. In the US, PE plants will remain competitive because of their feedstock advantage, Jacoby said. Focus article by Al Greenwood Thumbnail shows the construction of a chemical plant.

LONDON (ICIS)–The US Department of Agriculture (USDA) has published its World Agricultural Supply and Demand Estimate (WASDE) report for August. The August report forecasts an increase in corn and soybean production with corn at 15.1 billion bushels, up 47 million bushels from the July report, and soybeans projected at 4.6 billion bushels, up by 154 million bushels. Senior editors Mark Milam and Sylvia Traganida discuss the latest estimates, and take an in-depth look at current trends in the US market.

SINGAPORE (ICIS)–South Korean producers Hanwha Total Energies and Yeochon NCC are withdrawing their request for an antidumping probe on styrene monomer (SM) imports from China, based on a petition they filed with the Korea Trade Commission on 12 August. The probe, which was initiated upon requests from Korean producers, has been ongoing since 9 April and was supposed to end on 8 September. This petition withdrawal by the two companies is likely to conclude the four-month ADD investigation which have triggered significant concerns of Asian market players on a potential change in intra-Asia SM trade landscape since South Korea is China’s biggest export market for SM. Expectations heightened in June that Korea will launch antidumping duties (ADDs) on China-origin SM after China extended its five-year ADDs on SM imports from three origins, including Korea. KTC had held discussions and hearings in June to determine whether Chinese SM imports are causing material damage to Korea’s domestic market. China is no longer a regular importer of Korean SM, but some market players were expecting China’s ADD extension could trigger retaliations by Korea as a political countermeasure. Korea’s probe on SM imports from China has faced strong opposition from local end-users in downstream acrylonitrile-butadiene-styrene (ABS) industry which rely on feedstock from China to run their plants. During the period of June 2023 to June 2024, South Korea accounted for around 74% of China’s total SM exports, according to ICIS Supply and Demand Database. Although Chinese cargoes are no longer expected to be subject to Korean ADDs in near term, high logistics costs and elevated domestic spot prices in China could continue to hamper China-Korea SM talks. Some Chinese suppliers may also continue searching for alternative markets to diversify their sales portfolio. Focus article by Luffy Wu Thumbnail image: At Taicang Port in China on 12 January 2024.(Costfoto/NurPhoto/Shutterstock)

SINGAPORE (ICIS)–South Korean producers Hanwha Total Energies and Yeochon NCC are withdrawing their request for an antidumping probe on styrene monomer (SM) imports from China, based on a petition they filed with the Korea Trade Commission on 12 August. The probe, which was initiated upon requests from Korean producers, has been ongoing since 9 April and was supposed to end on 8 September. Expectations heightened in June that Korea will launch antidumping duties (ADDs) on China-origin SM after China extended its five-year ADDs on SM imports from three origins, including Korea.

SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson. The ICIS data continue to tell us that we are facing the biggest shake-up in the modern history of the petrochemicals industry. Let’s today use high-density polyethylene (HDPE) China accounted for just 6% of global HDPE demand in 1992 although it had a 22% share of the global population. By the end of 2024, we expect China to generate 33% of global demand from an 18% share of the population. For far too long, our industry overlooked the warning signs: China’s rapidly ageing population, its real estate bubble and the geopolitical split with the West. It was only a question of when rather than whether the Chinese economy would enter a more challenging phase. We can see from the ICIS data on spreads and margins that the “when” arrived in late 2021 – the Evergrande Moment. CFR China HDPE injection grade price spreads over CFR Japan naphtha costs have averaged just $212/tonne since the end of Petrochemicals Supercycle – from January 2022 onwards. This compares with the $487/tonne average during the Supercycle – 1992 until 2021. So, spreads need to rebound by 130% to get back to where they were during the Supercycle. This year, as we can see from the chart in today’s post, they have fallen to a new record low. Global capacity was added largely on the assumption that China’s HDPE demand growth would be higher than is going to be the case. My highly unscientific “wisdom of crowds” approach, which involved talking to lots of people, suggests that the consensus view was that China’s petrochemicals demand growth in general would be at 6-8% over the long term. Low single digit growth now seems more likely. Global HDPE operating rates were very healthy during the Petrochemicals Supercycle. Including two years after the end of the Supercycle (the 1992-2023 period), we estimate they averaged 88%. We forecast a global operating rate of just 75% in 2024-2030. Global capacity would have to grow by just 173,000 tonnes a year versus our base case assumption of 2.6m tonnes a year if 2024-2030 were instead to reach 88%. Rationalisation of capacity in disadvantaged regions such as Europe and Asia ex-China seems likely as China, the Middle East and the US carry on building. So much for what we know. What about the “unknown unknowns”? Here are just two of them: What will be the size of China’s population by the end of the century and therefore its HDPE and other resins demand? Estimates range from 633m to 525m or even less. Can China fully maintain its role as the Workshop of the World? Or will reshoring and trade tensions eventually lead to a major decline in Chinese exports? Facts, or rather data, are sacred. So should be rigorous scenario planning as “one size fits all” views of the future won’t get us anywhere. Neither will a repeat of the conventional thinking that got us into this mess in the first place. Editor’s note: This blog post is an opinion piece. The views expressed are those of the author, and do not necessarily represent those of ICIS.