MADRID (ICIS)–Supply of ethane from Pemex to polyethylene (PE) producer Braskem Idesa is now more stable after a renegotiation of the contract – but the global PE market remains in the doldrums, according to an executive at the Mexican firm. Sergio Plata, head of institutional relations and communications at Braskem Idesa, said a recovery in global PE prices could start in the second half of 2025 as the market is expected to remain oversupplied in the coming quarters. Plata explained how Braskem Idesa had to renegotiate the terms of an agreement with Pemex, Mexico’s state-owned crude oil major, for the supply of natural gas-based ethane, one of the routes to produce PE, to its facilities in Coatzacoalcos. Supply is now more stable and in the quantities agreed, he said. Braskem Idesa operates the Ethylene XXI complex in Coatzacoalcos, south of the industrial state of Veracruz, which has capacity to produce 1.05 million tonnes/year of ethylene and downstream capacities of 750,000 tonnes/year for high-density polyethylene (HDPE) and 300,000 tonnes/year for low-density polyethylene (LDPE). Braskem Idesa is a joint venture made up of Brazil’s polymers major Braskem (75%) and Mexican chemical producer Grupo Idesa (25%). ETHANE FLOWING, TERMINAL IN Q1 2025 Pemex agreed with Braskem Idesa to supply the PE producer with a minimum volume of 30,000 barrels/day of ethane until the beginning of 2025, when Braskem Idesa plans to start up an import terminal in Coatzacoalcos to allow it to tap into exports out of the US Gulf Coast. However, both parties sat to renegotiate that agreement after Pemex’s supply proved to be unstable, with credit rating agencies such as Fitch warning in 2023 of the “operational risk” such a deal with the state-owned major represented for Braskem Idesa. The outcome of the renegotiation is starting to bear fruit, explained Plata diplomatically, without providing any details. He conceded, however, that to outsiders, Pemex’s businesses could look rather odd. “We understand the positions of a public entity such as Pemex, and we understand its methods could look questionable to eyes outside our relationship,” said Plata. “However, at Braskem Idesa we were confident that if we sat down with them to renegotiate, clearly stating what we require from each other, we could reach a point in the renegotiation which worked for us as a company and for the Mexican petrochemicals sector as a whole.” Together with more stable supply from Pemex, Braskem Idesa also adopted the so-called Fast Track to import ethane while its own import terminal starts up. The terminal, known as Terminal Quimica Puerto Mexico (TQPM), closed the last financing details at the end of 2023. Plata said the terminal would start up “without a doubt” by the beginning of 2025, adding that construction was 70% complete by the beginning of July. According to Plata, with Pemex’s more stable ethane supply and the Fast Track system, Braskem Idesa is operating at 70-75% capacity utilization. Braskem Idesa (in $ million) Q1 2024 Q1 2023 Change Q4 2023 Change Q1 2024 vs Q4 2024 Sales 229 234 -2% 199 15% Net profit/loss -85 1 N/A -101 -16% EBITDA 36 26 36% 26 39% PE sales volumes (in tonnes) 205,500 195,100 5.4% 174,500 17.8% “We have had a very complex environment, with increased capacities in the US or China and with the war in Ukraine raising our production costs. We are undoubtedly in a down cycle and as a company we have tried to take care of our margins by controlling our costs and look closely at our investments,” said Plata. He said he “would not have the answer” about what to do with China’s dumping of product around the world, a fact that in Brazil, the largest Latin American economy, has prompted chemicals trade group Abiquim to lobby hard for higher import tariffs in polymers, as well as dozens of other chemicals. “Market analysts predict the current cycle may come to an end in the second half of 2025. Let’s hope so… This has been such a long crisis, aggravated by external factors such as wars and global convulsions, which undoubtedly also affect the industry, and the environment remains very uncertain.” Front page picture: Braskem Idesa’s facilities in Coatzacoalcos Source: Braskem Idesa Interview article by Jonathan Lopez Next week, ICIS will publish the second part of the interview with Plata, with his views on the challenges and opportunities for the chemicals and manufacturing sectors under the upcoming Administration led by President-Elect Claudia Sheinbaum amid the nearshoring trend

SHANGHAI (ICIS)–In this podcast, markets reporter Shannen Ng discusses how northeast Asia’s methylene diphenyl diisocyanate (MDI) supply is expected to remain tight as Q3 progresses. However, poor demand expectations in the Asian import markets for the rest of this quarter remain. Polymeric MDI sentiment in SE Asia, India supported by tight supply Monomeric MDI particularly sluggish and expected to remain so Weak demand outlook for China’s downstream construction and automotive sectors

LONDON (ICIS)–Europe’s run up to holiday season has been unusually busy for polyethylene (PE) and polypropylene (PP) markets, including some spot prices reversing for the first time since March 2024. In this ICIS podcast, European PE and PP senior editors Vicky Ellis and Ben Lake pick out July’s big themes, from logistics (hurricane Beryl and still-spiked Asian freight rates) to the mismatch between how local suppliers and converters are experiencing demand this month. They also highlight what to watch for August. Editing by Damini Dabholkar

SINGAPORE (ICIS)–Shipping disruptions affecting Maersk’s container shipping operations because of the Red Sea crisis have extended beyond the Far East-Europe routes to its entire global network, the shipping and logistics giant said. The fallout of the Red Sea crisis is continuing to cascade across the world, forcing vessels to temporarily divert and take longer routes around the Cape of Good Hope, thereby causing unprecedented challenges for global supply chains. The disruptions now extend beyond the primary affected routes, causing congestion at alternative routes and transshipment hubs essential for trade with Far East Asia, West Central Asia, and Europe, Maersk said in a statement on 17 July. Ports across the Asia Pacific, including Singapore, Australia, and China, are experiencing delays due to congestion. The coming months will be challenging for carriers and businesses alike, as the Red Sea situation stretches into the third quarter of this year, Maersk CEO Vincent Clerc said. Maersk operates around 740 ships across its various divisions, including container ships, tankers, and other specialized vessels. Extending rotations to travel the longer route around Africa takes two to three ships, depending on the trade in question, he said. “We are going to have in the coming month missing positions or ships that are sailing that are significant different size from what we normally would have on that string, which will also imply reduced ability for us to carry all the demand that there is,” Clerc said. The availability of additional capacity was low to begin with and, across the industry, carriers’ ability to bring in extra tonnage has been limited, he said, adding that at the same time, demand for container transport has remained strong. ASIA EXPORTERS’ WOES TO CONTINUE For Asia, the impact of the ongoing Red Sea Crisis is more on exports rather than imports, Maersk said. This is primarily because Asian countries are major global exporters. China, Asia’s biggest economy and the second-biggest in the world, is also the largest exporter to many Asian countries. Routes between the Far East – which spans east southeast Asia – and Europe via the Suez Canal have been directly impacted, with disruptions in the Red Sea affecting most trade routes. “First, hubs in Asia are being impacted with congestion across key ports, causing delays and bottlenecks to ripple through the entire system,” Maersk said. “Second, ocean networks have been reorganised with vessels being moved to different regions to better meet demand for capacity.” This has led to a widening global impact that has affected regions that weren’t originally directly affected by the Red Sea disruption. Intra-Asia shipping routes are also facing equipment shortages, especially out of China, impacting the entire industry. Initially affecting long-haul routes, the scarcity now extends to shorter regional routes. This leaves carriers like Maersk with a difficult choice: prioritize returning empty containers to China or shipping full containers to other destinations, both options translate to increased costs and contributing to further supply chain disruptions. “We are also approaching typhoon season, which is expected to impact East China and South China, creating further risks of congestion,” the shipping giant said. Focus article by Nurluqman Suratman

SINGAPORE (ICIS)–In this podcast, Asia ethylene editor Josh Quah and analyst Aliena Huang discuss the factors impacting arbitrage flows of ethylene from the US to Asia. Spot arbitrage window between US and Asia closed but term arrivals for July remain healthy Storm Beryl, low affordability in Asia, may keep spot arbitrage trades closed into Aug Panama Canal traffic levels expected to return to pre-congestion levels by Oct

SINGAPORE (ICIS)–In this podcast, ICIS analysts Patricia Tao, Lewis Unstead and Aliena Huang delve into how the upcoming CBAM (Carbon Border Adjustment Mechanism) will impact China’s export-oriented manufacturing sectors and hydrogen’s crucial role in its low-carbon economy. China’s national energy law draft includes hydrogen, marks shift toward low-carbon industry Move comes ahead of EU’s CBAM CBAM to affect global trade, particularly for high-emission products

SINGAPORE (ICIS)–SK Innovation, the parent company of battery maker SK On and petrochemicals producer SK Geo Centric, has agreed to merge with its energy affiliate SK E&S in an overhaul to improve its profitability. The two companies are merging in a proactive effort to navigate the challenging external business landscape, characterized by a prolonged global economic downturn, increased volatility in the energy and chemical industries, and a slowdown in the electric vehicle (EV) market, SK Innovation said in a statement on 17 July. “By integrating assets and capabilities across both energy and electrification sectors, the merged company will bolster its core competitiveness and profitability,” it said. Additionally, the merger aims to secure competitiveness in future energy business areas. Upon merging, the combined entity will transform into an energy firm with assets totaling Korean won (W) 100 trillion ($72.4 billion) and revenues of W88 trillion, “positioning itself as the largest private energy company in the Asia-Pacific region”, SK Innovation said. The merged firm will also increase earnings before interest, taxes, depreciation and amortization (EBITDA) to W5.8 trillion, up from pre-merger levels of W1.9 trillion, it said. The two companies expect that by 2030, the synergies from the integration alone will add over W2.1 trillion to EBITDA, which is targeted to hit W20 trillion by the end of the decade. “Notably, the merged company will be able to mitigate the high profit volatility of the petrochemical business, which has served as a reliable cash cow, with the stable profit generation capabilities of the LNG [liquefied natural gas], power, and city gas businesses,” SK Innovation said. The management boards of both SK Innovation and SK E&S approved the proposed merger on 17 July, subject to shareholders’ approval on 27 August. The merged corporation is expected to be officially launched on 1 November. “The merged company will develop a comprehensive portfolio that spans all areas, including energy sources (such as oil, chemicals, LNG, city gas, power, renewable energy, batteries, ESS [energy storage system] hydrogen, SMR, ammonia, and immersion cooling), energy carriers, and energy solutions,” SK Innovation said. “Currently, global oil majors are also currently pursuing balanced portfolios across the energy sector through various mergers and acquisitions.” SK Innovations’ business portfolio includes petrochemicals, lubricants, and oil exploration. It is now diversifying into future energy sectors such as electric vehicle batteries, small modular reactors (SMR), ammonia, and immersion cooling. SK E&S was spun off from SK Innovation in 1999 as a city gas holding company and is transitioning into a green portfolio that organically integrates its four core businesses – city gas, low-carbon LNG value chain, renewable energy, and hydrogen and energy solutions, to create synergies. Separately, SK On’s board has approved a merger with sister companies – crude oil and petroleum products trading firm SK Trading International and energy logistics firm SK Enterm to improve raw material purchasing efficiency and expand trading, helping improve SK On’s profit structure. “Through the merger of these three companies, SK On will be able to further strengthen its competitiveness in securing raw materials ($1 = W1,380)

HOUSTON (ICIS)–Liquid chemical tanker rates from the US Gulf to Asia are plunging this week as plant shutdowns and delays in the aftermath of Hurricane Beryl have led to “gaping large holes of space”, shipping brokers said on Wednesday. Hurricane Beryl made landfall in Texas on 8 July between Corpus Christi and Houston, which is a key region for US petrochemical production. Some plants took precautionary measures and shut down ahead of the storm, while others sustained damage or lost power or other utilities to their sites, leading to shutdowns and force majeures. A shipping broker said the outages and delays left shipowners without contract cargoes that are typically the base volumes for vessels. “As a result, there are gaping large holes of space available for prompt loading,” a broker said. The broker expects the trend to continue for the next week or two. A different broker said it is seeing part cargo space for the rest of this month and into August across MOL and Odfjell vessels. Rates have also softened this week along the USG-Brazil trade lane as some partial space has opened. Beryl has led to a “wait and see” sentiment for players on this trade lane, a broker said. PANAMA CANAL A broker said that Stolt has joined MOL and Odfjell in resuming transits through the Panama Canal. Restrictions have gradually eased at the canal after the Panama Canal Authority (PCA) began limiting transits in July of last year because of low water levels at the freshwater lake that feeds the locks because of an ongoing drought. Water levels have improved because of the onset of the rainy season and conservation efforts enacted by the PCA to better use the freshwater available to them. The PCA will limit transits on 3-4 August for planned maintenance at the Miraflores locks. Visit the ICIS Logistics – impact on chemicals and energy topic page. Visit the ICIS Hurricane Beryl topic page. Thumbnail image shows a container ship moving through the Panama Canal. Photo courtesy of the PCA.

UK government does not rule out increasing budget for offshore wind in next auction Capacity would need to average 16.60GW in the next two auctions to procure the capacity needed to reach revised 2030 target But only 10.6GW of offshore projects have the required development consent to enter the auction LONDON (ICIS)–The UK government has left the door open to a possible budget increase for offshore wind at an upcoming renewable capacity auction under the Contracts for Difference (CfD) scheme, after it said it intends to quadruple installed capacity for the technology by 2030. But ICIS calculations show that, depending on the strike price, the budget would have to increase between 2.3-5.4 times in order to allow for a capacity award consistent with meeting the revised target. And even if it did, planning hurdles are set to prevent this, with the pressure shifting on subsequent auction rounds. The budget for offshore wind in the upcoming round is currently £800m and the maximum strike price has been set at £73/MWh. A spokesperson for the department for energy security and net zero told ICIS that applications for the sixth allocation round are currently being assessed. “The Secretary of State will then carefully consider whether to increase the budget,” they said. The government did not confirm an exact figure for the revised offshore wind target. To present an idea of how much quadrupling offshore wind capacity by 2030 would translate into, ICIS quadrupled its forecast for installed capacity by the end of 2024, resulting in 61.08GW by 2030. Actual intended capacity may vary. A trader said: “I suspect they will increase the budget; we have had people backing out of projects and these will be the people saying they need better returns so the budget will need to be higher for the amount of capacity the government wants.” CFD BUDGET ICIS Analytics calculated that, in the next two CfD rounds, capacity will need to average 16.60GW per auction to obtain the amount needed to reach the 2030 target. This is to allow construction time which is usually between six to eight years. ICIS calculated that, if the auction cleared at a strike price of £60/MWh, a budget of £800m will be able to finance 4.2GW of capacity. If the auction cleared at the maximum strike price of £73/MWh, the budget would only be able to fund 3GW. If the budget was increased to £1bn, 5.3GW of capacity could be obtained with a clearing price of £60/MWh. Similarly, if the auction cleared at the maximum strike price of £73/MWh, 3.9GW could be obtained. SHORTFALL While an increase in budget to £1bn would procure more offshore wind capacity, a larger budget is required to obtain the capacity needed to meet the 2030 target. ICIS Analytics calculated a budget of nearly £1.8bn is needed to obtain 16.60GW of capacity in the sixth auction if it cleared at the lowest price of £44.1/MWh. This was modelled as the lowest figure as it is just above the maximum clearing price of the fifth auction round, which was £44/MWh and was too low to attract bids , If the auction cleared at £60/MWh, which is a base case scenario, the budget would need to be nearly £3.2bn. Furthermore, if the auction cleared at the maximum strike price, a £4.3bn budget is required. However, according to ICIS analyst Robbie Jackson-Stroud, there are too few entrants to obtain 16.60GW for the auction, as only 10.6GW of offshore projects have the required development consent to proceed to auction. This therefore puts increasing pressure on the seventh auction round, due to be held in 2025, to obtain offshore wind capacity needed to meet the 2030 target. As things currently stand, ICIS analytics forecasts only 39GW of offshore wind capacity by 2030 under a base case scenario, therefore falling short of the ambitious target. .