LONDON (ICIS)–Hopes of a recovery in Germany’s economy are fading, think tank ZEW said on Tuesday, as its economic sentiment indicator fell for the third month in a row. The research group’s September economic sentiment indicator declined by 15.6 points from August to 3.6 points, while its assessment of the current situation in Germany was down by 7.2 points to -84.5 points, the lowest since May 2020. Both indicators also fell sharply in August from the previous month. The economic sentiment indicator began its 2024 downward trend in July. “The hope for a swift improvement in the economic situation is visibly fading,” said ZEW president Achim Wambach. “In the latest survey, we once again observe a noticeable decline in economic expectations for Germany.” The outlook for the eurozone was also gloomy, with the September economic sentiment indicator down by 8.6 points to 9.3 points. The assessment of the current situation in the eurozone fell by 8 points from August, remaining firmly in negative territory at -40.4 points.

LONDON (ICIS)–Click here to see the latest blog post on Chemicals & The Economy by Paul Hodges, which suggests OPEC+ risks losing control of oil markets. 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. Paul Hodges is the chairman of consultants New Normal Consulting.

SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson. I did the same exercise on global ethylene markets almost exactly a year ago as I do in today’s post. This makes me wonder why there is talk of early signs of a global recovery in olefins and derivative markets. Based on the new calculations, what would it take to return global operating rates to their very healthy 1992-2023 average of 88%? Assuming global production, which is about the same as demand, stays unchanged from our base case, global capacity would have to grow by an average of around 2m tonnes a year versus our base case of 6.2m tonnes a year. This implies capacity closures elsewhere to get to the 2m tonnes a year of 2024-2030 capacity growth. Global capacity would need to grow at an average 1% per year to achieve a 2024-2030 operating rate of 88%. This would compare with the 1992-2023 average of 4%. One might argue that we have underestimated global demand given the likelihood of a loosening cycle by the Fed, perhaps a big dose of Chinese economic stimulus, and booming economies in the developing world such as India’s. But what happens in the rest of the world is less consequence compared with events in China. Today’s second chart – showing China’s percentage shares of global demand for the major ethylene derivatives in 1992 (at the start of the Chemicals Supercycle) and by the end of this year – underlines the disproportionate role that China has come to play in driving global consumption: In 1992, from a 22% of the global population, China’s average share of global demand across these ethylene derivatives was 6%. China’s share of global demand is forecast to reach 40% from only an 18% share of the global population by the end of 2024. The Economist wrote in its 7 September issue that the real Chinese economic picture may be bleaker than is commonly painted. “The official [Chinese government] numbers show that the GDP growth rate has reverted to pre-pandemic level, despite the moribund housing industry and low investment in infrastructure,” wrote the magazine “This is a risible claim, says Logan Wright of Rhodium Group, a consulting firm. ‘The broader problem is simply that the GDP data have stopped bearing any resemblance to economic reality,’ he explains. My ICIS colleague, Kevin Swift, has looked at disagreements over China’s population level. In the blog’s 30 August post, he wrote: “Demographer Yi Fuxian at the University of Wisconsin has questioned assumptions about current Chinese population and the likely path forward. He examined China’s demographic data and found clear and frequent discrepancies. These should parallel each other, and they do not. “Yi posits that China population in 2020 was 1.29bn, not 1.42bn, an undercount of over 130m.” If China’s population was smaller than commonly assumed in 2020, so perhaps was its chemicals demand, making today’s global oversupply worse. 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.

HOUSTON (ICIS)–The US Department of Energy (DOE) has announced a conditional commitment for up to $1.559 billion to Wabash Valley Resources to help finance a commercial-scale waste-to-ammonia production facility using carbon capture and sequestration (CCS) technology. The government funding would be part of a total investment of $2.4 billion that Wabash Valley Resources would secure for the project through private investment. Located in West Terre Haute, Indiana, the project is being planned to produce 500,000 tonnes of anhydrous ammonia annually and permanently sequestering 1.6 million tonnes of carbon dioxide annually. Officials said it will have the potential to be the world’s first, carbon-negative ammonia production facility and that the company would be repurposing an industrial gasifier to utilize petroleum coke. This will be the US’ first efforts to utilize petroleum coke to produce ammonia and store the associated emissions via permanent geologic sequestration. Wabash Valley Resources said it is their intention to demonstrate a commercially and environmentally viable end-use alternative for petroleum coke, which is a waste product generated during the oil refining process. Officials said this project would play a critical role in securing domestic fertilizer supply for the region commonly known as the Corn Belt, contributing to both food security and climate goals. This low-carbon ammonia would be cost-competitive compared to existing ammonia imports, helping to drive down costs for local businesses and consumers. It was noted that while ammonia fertilizer is a crucial element of the US agricultural system, its production is a significant contributor to climate change. Globally, the manufacturing of the nutrient accounts for 1% to 2% of all carbon dioxide emissions. Through this project, Wabash Valley Resources is striving to reduce the agricultural industry’s emissions. In addition to its environmental benefits, the project is expected to create 500 construction jobs and 125 operations jobs.

HOUSTON (ICIS)–Expected to make landfall late Monday in South Carolina but not develop further, the next round of tropical weather is already delivering wind and rains to the region but for the fertilizer industry, it was not seen as being the type of threat that Hurricane Francine was last week. While South Carolina and North Carolina have significant agriculture activities and infrastructure along with crop nutrient operations and distribution, fertilizer manufacturing is less prevalent than in other parts of the US. The storm was being classified as a tropical rainstorm with potential to produce several inches of rain per hour with it expected to trek northward once it makes landfall. There have been tropical storm-force winds seen from this event but there has not been a defined center of circulation. In terms of major fertilizer activity, Canadian producer Nutrien has the Aurora Phosphate plant in Aurora, North Carolina, with the city located near the coast. The company said it is keeping aware and taking necessary steps. “We are actively monitoring the tropical storm system and have comprehensive emergency response plans in place to ensure the safety of our people and operational integrity of our facilities,” said a Nutrien spokesperson. Like the previous tropical weather that has struck the US, this storm’s wrath will bring the most damage to crops. Harvesting of corn and soybeans are underway, with cotton and other crops now maturing also in jeopardy, with the heavy rainfall likely causing some localized flooding. Harvesting campaigns in both South Carolina and North Carolina have been halted, with this trend possibly carrying into the surrounding states. If the rain is extensive the delay could be several days, if not longer depending on rainfall amounts. The concern is with a delay in these activities it creates an additional lag for starting post-harvest field activities like end-of-the-year fertilizing. The US Department of Agriculture (USDA) reported that 47% of the corn crop had been completed with only 1% of soybeans having been harvested in North Carolina. There were no results provided for South Carolina. As with Hurricane Francine which hit both Louisiana and Mississippi much more severely, the true impact of this latest tropical system will be felt in crop damage rather than damaged fertilizer plants or retail operations. There is concern that any loss of yields will mean less income for farmers which then could cause a sizeable decrease in buying for further volumes.

HOUSTON (ICIS)–As the US recycled polyethylene terephthalate (R-PET) market continues to develop and new players establish supply relationships across members in the value chain, pricing mechanisms have shifted significantly over the course of the last 5+ years. Historically, R-PET pricing was linked to virgin pricing, but at a deficit, meaning recycled resins were expected to be cheaper than virgin. Now, the tables have turned, particularly for sought after “sustainability-driven” grades of recycled resin which typically command a premium to virgin due to the tight supply and high demand of these higher quality, clear resins. Pricing for these grades of recycled resins has shifted within the R-PET industry, such that pellet prices are largely based on their own feedstock and production costs. While spot pellet pricing is subjected to the additional lens of local supply and demand, including substitution with imports or cheap virgin, contract pellet pricing is now largely based off of bale feedstock formulas, with some contracts specifying individual step inputs, and others specifying the bale index and then an adder to represent the processing cost. Eventually, the market may move to a uniform indexed pellet price, settled on a routine frequency by the market, similar to how R-PET pricing is established in Europe, or how other commodity resin prices are established in the US, such as polyethylene (PE). Within the ICIS US R-PET commodity services, two new price series have been introduced which represent food grade pellet pricing calculated via a formula, starting with bale feedstock costs. While each contract will have unique formula inputs which are largely kept private, the following prices are meant as an indicator of average pellet pricing based on formula, as this can vary significantly from active spot market transactions – depending on the current market supply and demand. There is one assessment for the East Coast and one for the West Coast based on various bale feedstocks. The formula is listed below: [([(Bale price indicator + bale freight ) ÷ bale yield] + bale to flake processing costs) ÷ flake yield] + flake to pellet processing costs = pellet price Formula input descriptors: Bale price indicator: What quality (curbside or deposit) and region (East Coast vs West Coast) descriptors are used for selecting base pricing for bale feedstock costs in relation to the type most often used by local recyclers. Bale freight: Cost to transport material from bale producer (typically material recovery facility (MRF)) to bale buyer (typically the recycler/reclaimer). Bale yield: Factor to account for loss of material due to contamination within the bale; Curbside bales have higher contamination levels and thus lower yields. Bale to flake processing costs: Associated production costs from sorting, washing, grinding processes, including but not limited to facilities costs, utilities, labor, etc. Flake yield: Factor to account for loss of material due to contamination from flake to pellet stage. Flake to pellet processing costs: Associated production costs from pelletization, including but not limited to facilities costs, utilities, labor, etc. The numeric input values were gathered from market participants, with median values used among responses. The inputs are subject to change pending further feedback or market cost changes, such as the recent inflation of production costs within the last ~2-4 years. This price excludes delivery costs of the final pellet. This price also excludes explicit margin adders, though some processing costs may include inherit margin depending on the processing yield fluctuation. For more information on these new series, or to share feedback, please contact Emily Friedman at Emily.friedman@icis.com.

HOUSTON (ICIS)–Even with recent poor weather at hand, the US harvest continues to advance with 9% of corn completed and 6% of soybean acreage finished, according to the latest US Department of Agriculture (USDA) weekly crop progress report. The weekly update showed there is 9% of the corn crop harvested, which is above the 8% rate from last year and the five-year average of 6%. Texas is the leading state with 80% of their crop done with North Carolina next at 47%. There is currently 85% of corn at the dented stage, which is behind the 88% achieved in 2023 but it is ahead of the five-year average of 84%. 45% of the crop is rated mature, which trails the 48% mark from last year, but the current pace is above the five-year average of 38%. For corn conditions, there is still 4% rated very poor and 8% as poor with 23% now as fair. There is 49% listed as good with 16% remaining as excellent. Soybeans dropping leaves is now at 44% of the crop, which trails the 2023 level of 47% but is higher than the five-year average of 37%. In the first update on soybean harvesting, the USDA said there is 6% of the crop completed, which is ahead of the 4% level from last year and the five-year average of 3%. Louisiana is the leading state with 46% completed followed by Mississippi at 44%. For soybean conditions, there is still 3% listed as very poor with 8% now as poor. 25% remains as fair and 52% as good, with there now 12% rated as excellent. In other harvesting updates, there is 10% of the cotton acreage completed with sorghum harvest having reached 24%.

HOUSTON (ICIS)–Gevo has received a patent for its process that converts ethanol into olefins in a single step, providing another way to make propylene from renewable feedstock, the US-based renewable chemicals producer said on Monday. The patent, No 12,043,587 B2, addresses the company’s process that relies on catalyst combinations for the process, which can make propylene and butylenes, which are also known as butenes. Gevo had licensed the technology to LG Chem. Chemical companies have had limited ways to produce propylene or butylenes from renewable feedstock. Technology already exists to dehydrate ethanol to produce ethylene. Companies could then convert the ethylene to propylene through a metathesis unit, but that would require an additional step and another plant, which would increase costs. Another route is to hydrotreat natural oils and used cooking grease to produce renewable naphtha. That naphtha could then be cracked in traditional ethylene plants to produce olefins and aromatics. This process faces possible feedstock constraints if companies wish to use nonfood feedstocks. Already, oleochemical producers that rely on tall oil have had to compete with renewable diesel producers for feedstock. Gevo did not compare the costs of its process to these existing ways to make propylene and butylenes from renewable sources.

NEW YORK (ICIS)–It has been a long time coming and there is plenty more time before the chemical industry finally sees a meaningful upturn in the durable goods cycle, in turn giving a much-needed boost to commodity chemicals, according to Jefferies. “We expect demand stabilization in 2025, with a restock cycle and a rate-driven durables goods cycle in 2026-2027 to set the stage for the next period of tight commodity chemical supply/demand balances – MDI (methylene diphenyl diisocyanate) and methanol first, in our view, then acetyls, then olefins,” said Laurence Alexander, analyst at Jefferies, in a research note. In his base case scenario, the analyst sees US durable goods demand flat to down 3% in 2025 and up around 10% in 2026. The anticipated turn in the cycle for housing and durable goods would be a strong catalyst for shares of Eastman, Huntsman, Avient and DuPont, he pointed out. For chemicals in the near term, Alexander expects Q3 2024 to show a return to “normal seasonality” and Q4 volume outlooks to be trimmed 1-2% on more caution on the Christmas spending season – especially in Europe – as well as automotive production this winter. TRIMMING OUTLOOK FOR CELANESEGiven the softer near-term outlook, the Jefferies analyst also trimmed his earnings per share (EPS) estimates on Celanese for Q3 (by $0.06 to $2.84), Q4 (by $0.05 to $3.09) and for 2025 (by $0.10 to $10.40). “Credit easing is likely needed to trigger a demand rebound, and any tailwind from an improved credit environment will likely not be evident until mid-2025 at the earliest,” said Alexander. “Although destocking has faded, demand trends remain broadly sluggish with few signs of a recovery. European demand has yet to trough, North America is flattish and the recovery in Asia has been muted,” he added. By end-market, he sees electronics likely rebounding but at a slower pace until consumer confidence improves and automotive production accelerates. Consumer durables and construction demand is likely to remain soft into next summer. And automotive demand is muted overall, with headwinds to production schedules likely in the near term. Longer term, he expects better momentum in electric vehicle (EV) sales in China. Focus article by Joseph Chang