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Speciality Chemicals04-Sep-2024
HOUSTON (ICIS)–The collectively bargained
contract between US East Coast and US Gulf
ports and dock workers expires at the end of
the month and the parties are not currently
negotiating, leading one of the nation’s
largest retail trade groups to urge the
government to get involved.
Last week, both parties submitted documents
with the US Federal Mediation and Conciliation
Service (FMCS) informing the agency of a
dispute between the parties, as required by
law.
About 14,500 dock workers are represented by
the International Longshoremen’s Association
(ILA), while the 36 ports – including three of
the busiest ports in the US in Houston, New
York and New Jersey, and Savannah, Georgia –
are represented by the United States Maritime
Alliance (USMX).
The looming work stoppage would have major
impacts on the US economy, and the National
Retail Federation (NRF) has urged both sides to
resume negotiations.
“At a time when inflation is on the downward
trend, a strike or other disruption would
significantly impact retailers, consumers and
the economy,” NRF President and CEO Matthew
Shay said. “The administration needs to offer
any and all support to get the parties back to
the table to negotiate a new contract.”
In June, NRF led a coalition of 158 state and
federal trade associations in a letter to
President Joe Biden urging the administration
to work with the negotiating parties to reach a
new agreement.
The NRF said that the threat of a strike during
the peak shipping season has many retailers
already implementing costly mitigation
strategies, such as shifting deliveries to West
Coast ports.
This adds additional costs because of the
longer routes, which could be even more drastic
as capacity for ocean carriers is already tight
because of diversions away from the Suez Canal
and Red Sea.
USMX said in a statement on its website that it
is seeking a return to the bargaining table.
“USMX has still been unable to secure a meeting
with the ILA to resume negotiations on a new
master contract,” according to the statement.
“USMX continues to meet with its members in
preparation for the resumption of negotiations,
and it remains committed to working with the
ILA leadership on a new agreement.”
The ILA is holding Wage Scale Committee
meetings today and tomorrow in Teaneck, New
Jersey, and union president Harold Daggett
insists the union will strike at 00:01 Eastern
Time on 1 October if a deal is not reached.
“There is a real chance we will not have an
agreement in place,” Harold Daggett said in a
video shared on the ILA website.
“The ILA will definitely hit the streets on 1
October if we do not get the kind of contract
we deserve,” Daggett said.
Dennis Daggett, ILA executive vice president,
said in the video that the two sides are at an
impasse and cannot even get past the economics
of a new contract.
Other issues that the ILA cites as
deal-breakers are container royalty (special
payments to compensate longshoremen for
decreased employment opportunities resulting
from the use of containerized shipping), better
healthcare benefits, and a ban on all automated
and semi-automated services at the ports.
Dennis Daggett said the ILA has been working
through local agreements between locals and
individual ports before focusing on the overall
agreement and still has some items to work out
at the local level, including Mobile, Alabama,
and Jacksonville and Tampa, Florida.
Market participants have said a strike by
dockworkers would not have much of an impact on
liquid chemical tankers.
One reason is that 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 more liquid chemicals are being moved on
container ships in isotanks.
Focus story by Adam Yanelli
Visit the ICIS Logistics – impact on
chemicals and energy topic
page
Ethylene04-Sep-2024
BUENOS AIRES (ICIS)–For years, Latin American
petrochemicals companies have been trying to
increase diversity within to better represent
the consumers they want to sell their products
to – without much success.
Company boards and middle management levels
continue to be mostly populated by men, and
most of them tend to be white, in a region
where ethnic minorities are sometimes the
majorities.
The environmental, social, and governance (ESG)
mantra has been used so many times that it has
become a bit futile. A few statistics to show
off positive trends are one thing – real change
is another.
Companies need to go the extra mile to be as
plural as society. And in some Latin American
countries like Brazil, that mostly means one
thing: blackness, in the country outside Africa
with the largest black population.
They will need to hire and promote people who
will not conform to the norm; visionary people
who will be wise enough to know a company will
not reach its sales potential until they try,
at least, to resemble the society they operate
in.
Brazil’s polymers major Braskem – the largest
petrochemicals producer in Latin America –
seems to have found one of those people: meet
Debora Ferraz, global senior HR manager at the
company and specialist in diversity, equity,
and inclusion (DE&I) issues.
“My job is not only about gender inequality,
although that is still a big part of it, of
course. My job goes much further than that and
it involves making Braskem more like the
country: in Brazil, 50% of the population are
black or have black roots,” said Ferraz.
“We have now established a system in which the
HR person looking to hire will not see in what
university the candidate coursed his or her
studies. Before, we always ended up hiring
people who were anything but plural: they all
spoke English, they all came from the same
universities. Behavior is now the key element
in our hiring processes.”
Ferraz went on to say that in Braskem’s Mexican
operations, a country with painful statistics
showing sexism is women’s everyday life, a
hiring process will not go ahead if there is
not at least one woman shortlisted.
In Europe, where nationality is probably the
biggest factor determining discrimination,
Braskem pays more attention to that factor,
said Ferraz. In the US, it is veterans of war,
many of whom find themselves lost in a
competitive labor market after 20 or 30 years
of service.
Ferraz was speaking to delegates at an event
about sustainability organized by the Latin
American Petrochemical and Chemical Association
(APLA). Her talk captivated the audience, and
it was recurrently referred to thereafter.
RACISM: LONG
SHADOWBrazil is Latin America’s
largest economy, with 220 million consumers,
and it is a case increasingly studied when it
comes to racism and discrimination. The shadow
of four centuries of Portuguese Empire rule,
where enslaved black Africans composed the
bread and butter of the workforce, have left a
mark present still today, in all aspects of
life.
“The black and brown [Brazilians with black
roots] populations represent 9.1% and 47% of
the Brazilian population, respectively. Yet,
the share of these population is lower in the
indicators that reflect higher levels of life
conditions,” said a report by Brazil’s
statistics office IBGE in 2022.
“This indicator already shows a disadvantage of
those populations when inserting in the labor
market. The proportions of the black and brown
populations among those unemployed and
underutilized are higher than what they
represent in the labor force,” it added.
Racism is so ingrained in Brazil that when the
country officially abolished slavery in 1888,
the last nation in the western hemisphere to do
so, it gave no rights worth the name to its
black population and even decided to go as far
as Italy or Japan to look for the workers it
needed to feed its nascent industrial sectors.
Hence the large Japanese or Italian minorities
present in the country, who were allowed to
integrate fairly well and some of whom went on
to build business empires, quickly becoming
part of the economic fabric.
Meanwhile, blacks remained at the favelas,
Brazil’s famous shanty towns, only mixing with
the non-black population when they went to do
the badly paid jobs, many times in the informal
economy.
Brazil’s Fernando Henrique Cardoso, the
center-right president who stabilized the
economy in the 1990s and gave way to the
successes of President Luiz Inacio Lula da
Silva in his first and second terms
(2001-2011), has become a reference in racism
studies.
A quote by Cardoso lies in one of the walls of
Sao Paulo’s Museu Afro-Brasil, which only
opened its doors in 2004 and is painful journey
through Brazil’s most shameful past, a quote
which sums up why the integration of
all Brazilians will be a long-term and
laborious enterprise.
“An economic system which was based in slavery
and violence for four centuries creates a
deformed society,” said Cardoso.
And a deformed society will invariably take
many decades – hopefully not centuries – to be
fixed. Companies like Braskem should make more
efforts to bring people like Ferraz in but,
most importantly, listen to what they have to
say and follow their advice – Ferraz is black
herself, and without doubt she will have
suffered racism.
“We need to aim to have a good representation
of society within the company. To get serious
with this, we must have quantitative targets:
we can do continuous training with employees,
but if we don’t set clear targets, nothing will
be achieved,” said Ferraz, who has been in her
current post since 2022.
“Up to that year, 30% of our workforce was
black but that figure had not changed in the
preceding 15 years, no matter how many
trainings we did. Since 2022, that figure has
increased to 37%. What has changed? That we set
clear targets, and we are fighting hard to
achieve them. I speak monthly with the CEO and
with other board members, because they are the
first ones who must believe in this.”
Speaking at the same panel, Paola Argento, head
of diversity at Argentina’s energy and
petrochemicals major YPF, corroborated that
until a company does not employ a plurality of
workers – each of them feeling free enough to
bring its own singularity to the workplace – a
company will not reach its potential.
“If we all come from the same universities, the
final product we offer will not be innovative.
Plurality allows us to produce better products
and services. These days, most consumers do
care about these issues, so the lack of
plurality and innovation will end up negatively
affecting sales,” said Argento.
“But to achieve this true plurality of
thinking, the highest executives at a company
have to understand it and be fully behind it.”
The APLA sustainability event runs in Buenos
Aires on 4 September.
Front page picture source: Brazil’s
statistics office IBGE
Insight by Jonathan Lopez
Speciality Chemicals04-Sep-2024
LONDON (ICIS)–Europe chemicals shares and
public markets slumped on Wednesday in the wake
of sell-offs in Asia and the US on the back of
growth fears and a crude oil sell-off.
Stock exchanges in Asia and the US crashed on
Tuesday night and Wednesday morning for the
second time in less
than a month after another market rout,
with weak
economic data from the US and China once
more ringing alarm bells.
BEARISH US INDICATORS
As was the case during the early August rout,
bearish economic data from the US stoked market
fears of a slowdown in the country, which has
proven the most resilient large mature economy
during the slump of the last few years.
The US manufacturing sector contraction
deepened in August, according to purchasing
managers’ index (PMI) data collected by S&P
Global, showing a drop from 49.6 in July to
47.9, with future indicators pointing to
potential further deterioration ahead.
“There is a worrying narrowing of the pockets
of strength,” said ING chief international
economist James Knightley, commenting o the
numbers.
“Just 22% of industry is experiencing rising
orders and just 17% are seeing rising
production. Historically, this weakness in
output and orders points to a sharp slowing in
GDP growth,” he added.
The August figures are the latest warning
signal on economic momentum in the country,
following an unexpected decline in manufactured
goods orders in June, according to the US
Census Bureau in early August, the most recent
data available.
As was the case in last month’s market crash,
tech stock slumps led the US declines on
Tuesday. While sector declines last month
had been driven by growing scepticism over the
potential of artificial intelligence, Nvidia
saw one of the sharpest falls declines this
month.
The chipmaker reportedly received a government
subpoena as part of an antitrust investigation
wiped over 9% off its market value, a loss
estimated at $279 billion.
ASIA SLUMPS
With global microchip supply chains strongly
connected to Asia, the Nvidia sell-off also
ripple through the region’s technology stocks,
with core players including Samsung, Tokyo
Electro and Taiwan Semiconductor suffering
sharp losses by Tuesday’s close.
Economic data for China released late last week
showed the first decline in export orders in
eight months, while the manufacturing sector I
the country remained in contraction for the
fourth consecutive month in August, and house
prices seeing the slowest pace of growth in
2024 so far.
Industrial indicators for Europe, where
manufacturing has been on recessionary footing
for over two years, new order volumes are
continuing to decline, potentially signalling a
period in autumn where manufacturing demand is
shrinking in US, China and the eurozone.
OIL SUPPLY
LENGTHENSCrude oil prices also
slumped, falling to the lowest level in
to the lowest levels of the year, on the
back of expectations that the OPEC+ coalition
will begin to unwind their 2.2 million bbl/day
production cuts next month.
Expectations that Libya will begin to restart
crude production and exports after a political
agreement was reached.
These two factors point to a substantial
increase in supply despite ongoing sluggish
demand, driving Brent and WTI futures down to
$74.19/bbl and $70.79/bbl respectively in
midday trading on 4 September.
The US Dow, S&P 500 and NASDAQ indices
closed down 1.51%, 2.12% and 3.26% respectively
on Tuesday evening, while Japan’s Nikkei 224
and Hong Kong’s Hang Seng bourses concluded
trading down 4.24% and 1.10% on Wednesday.
In Europe, Germany’s DAX index was down 0.84%
in midday Wednesday trading, while France’s CAC
40 and the STOXX Europe 50 index had lost 0.97%
and 1.19% respectively.
Aggregate chemicals sector losses were more
modest, with the STOXX 600 index for the sector
down 0.15% as of 13:29 BST.
EMS-Chemie and Umicore had suffered the
sharpest declines as of that time, dropping
1.49% and 1.31%. Linde and Yara shares both
dropped 0.97% compared to Tuesday’s close,
while Brenntag, Bayer and OCI saw falls of over
0.50%.
Focus article by Tom Brown.
Thumbnail photo: Traders in Seoul, South
Korea, on 4 September, The South Korea
Composite Stock Price Index (KOSPI) closed down
3.15% on the day. Source: Jeon
Heon-Kyun/EPA-EFE/Shutterstock
Global News + ICIS Chemical Business (ICB)
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Crude Oil04-Sep-2024
SINGAPORE (ICIS)–Asian petrochemical shares
slumped on Wednesday as regional bourses
tracked Wall Street’s rout overnight on poor
data from both the US and China, with crude
prices shedding more than $1/bbl in late Asian
trade.
Major US equity indexes suffer worst
session since 5 August
China August export orders decline for
first time in eight months
US crude trades below $70/bbl
At the close of trade in Tokyo, Mitsui
Chemicals fell 3.07% and Sumitomo Chemical
tumbled by more than 4%, with the Nikkei 225
index down 4.24% at 37,047.61.
It was the second sharpest decline in Japan’s
benchmark stock index since the 12% plunge on 5
August due to US recession fears and a stronger
yen.
In Seoul, LG Chem ended down 2.06%, with South
Korea’s KOSPI Index down 3.15% to close at
2,580.80.
In Hong Kong, PetroChina slumped by more than
6% at the close of trade, with the Hang Seng
Index down by 1.10% at 17,457.34.
In Kuala Lumpur, PETRONAS Chemicals Group (PCG)
slipped by 0.36% with the stock market index
dipping by 0.43% to close 1,670.88.
Major US equity indexes overnight posted their
worst session since the global sell-off on
5 August this year, as financial markets
evaluated economic data from the US and China.
The Dow Jones Industrial Average tumbled
overnight by 1.51%, the S&P 500 fell by
2.12%, and the Nasdaq Composite closed 3.26%
lower.
US, CHINA DATA STOKE SLOWDOWN
WORRIES
In the US, the Institute for Supply Management
(ISM) monthly survey of purchasing
managers showed a reading of
47.2, below the 50 breakeven point for
expansion of activity for the fifth straight
month.
Separately, the final S&P Global US
manufacturing PMI reading for August was at
47.9, down from 49.6 in July. The latest
reading was the lowest since last December and
signaled a second consecutive month of
deteriorating manufacturing conditions.
Meanwhile, China released economic data on 31
August indicating a decline in export orders,
the first such decrease in eight months.
China’s factories remained in contraction mode,
with August official manufacturing
PMI posting a reading of below 50 for the
fourth consecutive month.
Additionally, data on 1 September showed that
China’s new home prices increased at their
slowest pace of the year during August.
The average price for new homes across 100
cities in the country edged up 0.11% from July,
slowing from the 0.13% rise in June this year,
according to data from property researcher
China Index Academy.
OIL PRICES CONTINUE
LOWER
Oil prices fell by more than $1/bbl in late
Asian trade on Wednesday, extending their
losses after plunging by more than 4% the
previous day and hovering at their lowest since
December 2023 on concerns about sluggish global
demand.
Also exerting downward pressure on the market
are expectations that a political dispute
halting Libyan exports could be resolved.
Libya’s move to appoint a new central bank
governor signals progress in resolving recent
challenges, but this development, coupled with
the resumption of Libyan oil production and
OPEC+’s planned output increase, could lead to
an oversupply of oil, putting downward pressure
on crude prices.
“The market is also bracing itself for the
gradual return of OPEC+ [OPEC and its allies]
supply from October, at a time when there is
plenty of concern over demand weakness,” Dutch
banking and financial information services
provider ING said in a note.
“The further pressure we see on prices the more
likely that OPEC+ will be forced to scrap plans
to bring supply back onto the market,” it said.
“However, with the balance looking soft through
2025, the question is when the group will
eventually be able to bring supply back onto
the market without putting significant pressure
on prices,” ING added.
Focus article by Nurluqman
Suratman
(Updates stocks, oil prices; adds ING comments)
Thumbnail image: At Yantai Port in China on
2 September 2024. (Source:
Costfoto/NurPhoto/Shutterstock)
Crude Oil04-Sep-2024
SINGAPORE (ICIS)–Typhoon Yagi is steadily
intensifying and tracking northwestward across
the South China Sea on Wednesday, with landfall
expected on Guangdong province in southern
China on 6 September.
The China Meteorological Administration (CMA)
issued on Wednesday an orange typhoon warning –
the second highest level in a four-tier scale.
Strong winds, heavy rainfall and rough seas are
forecast over the central and southern coastal
areas of Fujian and the central and eastern
coastal areas of Guangdong province.
Yagi, which intensified into a typhoon early on
Wednesday, was centered some 60 kilometers
(37.28 miles) east of Wenchang city, Hainan
province at 02:00 GMT, according to CMA.
It is forecast to move in a west-northwest
direction at a speed of about 10 kilometers per
hour, and its intensity will gradually increase
before making landfall on the coast Wanning,
Hainan, and Dianbai in Guangdong on the
afternoon of 6 September.
Guangdong houses the Shenzhen Special Economic
Zone (SEZ), a major hub for industries such as
electronics, telecommunications, and logistics.
The typhoon will then move into the Gulf of
Tonkin in the early morning of 7 September, and
then move towards the China-Vietnam border
before gradually weakening.
Yagi previously made landfall as a tropical
storm in the northern Aurora province of the
Philippines on 2 September, killing 14 people.
It comes in the wake of
Typhoon Shanshan, which crossed Japan late
last month.
Shanshan had brought record-breaking rainfall
triggered widespread flooding and landslides in
Japan, particularly in the western and eastern
regions.
Over 1,000 domestic flights and several
international flights in Japan have had to be
canceled due to Shanshan, affecting thousands
of passengers. Rail operators had suspended
Shinkansen bullet trains and other services.
Polyethylene04-Sep-2024
SINGAPORE (ICIS)–Click here to
see the latest blog post on Asian Chemical
Connections by John Richardson.
Alice asked the Chesire cat perched in a tree,
“what road do I take?” to which the cat asked,
“where are you going?” Alice admitted, “I don’t
know.” The cat’s response was, “then it doesn’t
matter. If you don’t know where you are going,
any road will get you there”. Lewis Carroll’s
Alice in Wonderland, published in 1865, has
always been more than just a fabulous
children’s story.
Such is the plight of some chemicals companies
as they recognize the need for change, but
don’t know exactly what change looks like as
they struggle to decide which road to take.
I see the problem here as being bogged down in
the details, getting stuck in the weeds, when
the details are simply unknowable right now.
But what we do know and must determine at the
C-suite level – and this would then trickle
down to every level of organization – is the
overall direction. The details will sort
themselves out later.
See today’s blog for a reminder of the ten
interconnected reasons why I believe that the
Chemicals Supercycle is over. Click on the
links in the slide for the relevant background.
The first question each commodity chemicals
company needs to answer is this: “Can we
continue to compete in the global commodity
chemicals space, or do we instead need to
become a niche, higher-value player?”
There will be many, many shades of grey between
these two extremes. But C-suites should start
with a binary choice as I believe that:
The truly global and ever-expanding
commodity players are likely to be in the
Middle East, the US and Canada only because of
feedstock advantages – and connected to
feedstocks, the push to convert more oil into
chemicals.
We don’t know whether China can be a major
global export player in commodity chemicals
(maybe in some value chains where it is already
the dominant player) because of geopolitics.
What seems clearer is that by itself, and with
its geopolitical partners, it is likely to
continue its push to greater commodity
chemicals self-sufficiency.
This leaves the rest of the world – barring
a few state-owned oil-to-gas-and-chemicals
majors in regions such as Southeast Asia –
facing the challenge of becoming more niche.
So, you are Alice. You have returned to
the tree, having decided where you want to go.
You ask the Cheshire cat, me, what route to
take. All I will say here is “meow”. For more
details, contact john.richardson@icis.com.
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.
Crude Oil04-Sep-2024
SINGAPORE (ICIS)–Asian petrochemical shares
tumbled in early trade on Wednesday as regional
bourses tracked Wall Street’s rout overnight
following lackluster manufacturing data from
both the US and China, with crude prices
extending declines.
Major US equity indexes suffer worst
session since 5 August
China August export orders decline for
first time in eight months
Crude benchmarks fall amid easing Libya
supply concerns
At 03:20 GMT, Mitsui Chemicals was down close
to 2% and Sumitomo Chemical tumbled by more
than 3% in Tokyo, as the benchmark Nikkei 225
shed 3.83% to 37,405.59.
In Seoul, LG Chem fell by more than 2%, with
South Korea’s KOSPI Index slumping 2.48%.
In Hong Kong, PetroChina was down more than 4%
as the Hang Seng Index slipped 0.69%.
In Kuala Lumpur, PETRONAS Chemicals Group (PCG)
slipped by 0.36% with the stock market index
slipped 0.25%.
Major US equity indexes overnight posted their
worst session since the
global sell-off on 5 August this year, as
financial markets evaluated economic data from
the US and China.
The Dow Jones Industrial Average tumbled by
1.51%, the S&P 500 fell by 2.12%, and the
Nasdaq Composite closed 3.26% lower.
US, CHINA DATA STOKE SLOWDOWN
WORRIES
In the US, the Institute for Supply Management
(ISM) monthly survey of purchasing managers
showed a reading of 47.2, below the 50
breakeven point for expansion of activity for
the fifth straight month.
Separately, the final S&P Global US
manufacturing PMI reading for August was at
47.9, down from 49.6 in July. The latest
reading was the lowest since last December and
signaled a second consecutive month of
deteriorating manufacturing conditions.
Meanwhile, China released economic data on 31
August indicating a decline in export orders,
the first such decrease in eight months.
China’s factories remained in contraction mode,
with August
official manufacturing PMI posting a
reading of below 50 for the fourth consecutive
month.
Additionally, data on 1 September showed that
China’s new home prices increased at their
slowest pace of the year during August.
The average price for new homes across 100
cities in the country edged up 0.11% from July,
slowing from the 0.13% rise in June this year,
according to data from property researcher
China Index Academy.
OIL PRICES CONTINUE
LOWER
Crude benchmarks continued lower on Wednesday
after
falling to their lowest this year in the
previous session on signs of a deal to resolve
a dispute that has stopped Libyan crude
production and exports.
Libya’s move to appoint a new central bank
governor signals progress in resolving recent
challenges, but this development, coupled with
the resumption of Libyan oil production and
OPEC+’s planned output increase, could lead to
an oversupply of oil, putting downward pressure
on crude prices.
Focus article by Nurluqman
Suratman
Thumbnail image: At Yantai Port in China on
2 September 2024. (Source:
Costfoto/NurPhoto/Shutterstock)
Ethylene03-Sep-2024
SAO PAULO (ICIS)–Brazil’s GDP growth in the
second quarter stood at 1.4%, surprising on the
upside, in what is starting to become an
overheating compounded by rising inflation
which could lead to hikes in interest rates,
according to analysts.
On Tuesday, Brazil’s statistical office IBGE
said growth in the second quarter had stood
nearly 50% stronger than analysts consensus
estimates, which were at 0.9%.
In Q1, already a healthy month due to the peak
of the agricultural season, GDP growth stood at
1%.
Year on year, GDP in the second quarter rose by
3.3%, compared with Q2 2024.
GROWTH ACROSS THE BOARD
All subsectors posted growth in the second
quarter, said IBGE. In the
petrochemicals-intensive industrial sectors,
the best performer was electricity and gas,
water, sewage, and waste management activities
(output up 4.2% quarter on quarter), followed
by construction (3.5%) and manufacturing
industries (1.8%), which offset a fall of 4.4%
in extractive industries.
Within services, all subcomponents posted
growth in the second quarter. Spending by
households and public institutions both rose by
1.3%, while gross fixed capital formation rose
by a healthier 2.1%, quarter on quarter.
Exports rose by 1.4%. but imports rose at a
much faster 7.6%, something the chemicals
industry is well aware of and thus is demanding
hefty import tariff increases to protect
domestic producers market share.
OVERHEATING
Even if the economy slowed down considerably in
the second half of 2024, which is a pattern for
the agricultural-intensive Brazilian economy
when the main harvests take place in H1, GDP
would be on course to grow by 3% in 2024.
“The flip side is that it will heighten the
central bank’s concerns about inflation and the
probabilities have probably now tilted towards
a 25 basis points hike in the Selic rate at the
Copom [monetary policy committee] meeting later
this month,” said on Tuesday analysts at
London-based Capital Economics.
The Selic main interest rate benchmark stands at 10.50%
after three consecutive Copom meetings leaving
rates unchanged due to a late uptick in
inflation.
Brazil’s annual rate of inflation stood
in July at 4.50% and marked its fourth
consecutive increase as the Brazilian real
depreciated against major currencies and
investors showed skepticism Lula’s cabinet is
going to keep fiscal discipline going forward.
IBGE is due to publish August inflation figures
on 10 September.
“Based on the outturns for the first half of
the year, the economy looks set to expand by
around 3% over this year as a whole. But this
is above Brazil’s potential rate and is going
to add fuel to the debate about whether Copom
will raise interest rates,” concluded Capital
Economics.
“We’ll firm up our forecast after the release
of the August inflation figures. But as things
stand, we think the balance of probabilities
has now tilted towards a modest increase in the
Selic rate, beginning at this month’s Copom
meeting.”
Ethylene03-Sep-2024
SAO PAULO (ICIS)–The Brazilian government’s
decree changing natural gas regulations could
potentially overhaul the market and, along the
way, benefit the chemicals industry by
providing it with cheaper energy and eventually
with ethane-based feedstocks.
The job of a lobbyist may be well paid, but it
must be a hard one most of the time. For years,
Brazil’s chemicals trade group Abiquim had been
lobbying for the government to pass regulations
which would allow the natural gas which comes
as a byproduct from crude oil production to
stay within the economy, and not be just
reinjected into the ground again.
To make common cause on that lobbying, Brazil’s
polymers major Braskem has also been saying for
years that it stands ready
to expand its Duque de Caxias facilities,
in the state of Rio de Janeiro, as soon as the
necessary gas and derivatives were available.
For years, those demands had fallen in deaf
ears.
Until 26 August, when the cabinet presided by
Luiz Inacio Lula da Silva passed a decree
contemplating, among other measures, higher
powers for the oil and gas regulator ANP to set
up the amount of gas which is reinjected into
the system, for instance.
If fully implemented, the decree could
completely change the natural gas market in
Brazil, and ultimately benefit the chemicals
industry via lower energy costs and,
potentially, having more ethane, rather than
crude-based naphtha, as a raw material.
In a written response to ICIS, Abiquim’s
director general Andre Passos celebrated the
decree and did not share the fears of some
analysts, who see in giving regulators more
power than traditional willingness to basically
intervene the market.
REINJECT OR NOT TO REINJECT – AND WHO
PAYS THE BILLActing on natural
gas in Brazil had almost become an imperative
since the US shale gas revolution changed that
country’s energy landscape, making it again a
net exporter and reviving the petrochemicals
industry to an extent no-one could imagine just
two decades ago.
In the US and Brazil, the two largest chemicals
producers in the Americas, the contrast is
stark: natural gas prices in the southern
neighbor are around four times higher than in
the US.
However, some analysts have said they are
concerned about the type of action
taken, arguing that giving regulators such as
the ANP more power could lead to more
government interventionism in the oil and gas
sector, potentially denting Brazil’s crude
sector attractiveness to invest.
However, lest not forget that Brazil’s crude
sector is mostly dominated by one player,
Petrobras, and this player is majority owned by
the state: its CEO is appointed or dismissed as
the President sees fit, and the crude major is
effectively one more arm of the cabinet – a
ministry of energy bis, so to speak.
Still, Brazil’s crude sector was meant to go
towards more liberalization, not less. And this
is where the decree on natural gas passed in
August overreaches, according to critics, the
scope of what a government should do or should
not do to encourage certain economic activity.
According to the decree, the ANP will be able
to mandate to crude oil players the levels of
natural gas they can reinject back into the
system during their crude oil extraction
operations, and how much they should make
available for companies and households.
In simpler words: crude producers will have to
go from reinjecting most of the gas – at a very
low cost – to create an infrastructure to
transport that gas onshore.
For now, crude oil majors operating in Brazil
have, for the most part, kept quiet about the
decree. In a written response to ICIS on 29
August, Shell said it was “analyzing” the
decree, without any further comment, a response
it has not updated as of 3 September.
Petrobras and Equinor had not responded to a
request for comment at the time of writing.
Equally, Braskem did not respond either to
questions about potential petrochemicals
expansions or how the decree could affect
investments in crude oil and, ultimately,
affect the industrial sectors if that was to
happen.
Petrobras’ CEO, Magda Chambriard, said,
however, the company would do “everything
possible” to reinject as much gas as it is able
to, but also reminded how this reinjection will
only be possible in the production platforms to
be started up in the future.
“On the platforms that are already there [in
operation] and on those that are already being
delivered, this [reinjecting more gas] will not
be possible,” said Chambriard, quoted by
specialized publication Offshore
Energy.
Abiquim’s Passos is not concerned at all and
said that the powers given to ANP is a natural
step for “an aspect of oil and gas production”
that was not previously covered by the
regulators.
“The power to regulate will be used considering
the interests of producers, consumers, and the
state and, obviously, without implying a
disincentive or a halt to new investments. In
any case, given the magnitude of investments in
oil, new investments specifically for gas would
not significantly alter the competitiveness of
oil exploration and production (E&P) in
Brazil,” said Passos.
“Abiquim is confident that the costs associated
with E&P in Brazil’s oil sector are
sufficiently low to cover any additional costs
that may arise.”
And to the fears about higher intervention from
the government, Passos said it was a “global
characteristic” of the crude oil and gas
sectors to be highly regulated.
CHEMICALS CHEERS,
FINALLYAbiquim’s Passos is well
aware of Petrobras’ CEO warning about the
slowness in the natural gas market, and how it
may take years for the changes benefiting
chemicals to take place.
But, after years of unsuccessful lobbying,
Passos is a happy man who says the authorities
have finally a vision of what chemicals should
be and what its problems are. With that, he is
ready to wait.
“Nothing will be immediate. However, there is a
compatibility between the time needed for
greater availability of natural gas, improving
the competitiveness of this raw material in
Brazil, and the time required for petrochemical
projects to mature – we should consider that
this is a structural action with medium- and
long-term impacts,” said Passos.
However, after years of lobbying for a decree
like the one just passed, the trade group was
understandably exultant, not least because this
comes just two months after another success. In
June, Abiquim and Passos as its representative
were part of Lula’s entourage when he went on a
state visit to gas-rich Bolivia in June.
During the visit, Brazil and Bolivia signed
agreements to expand natural gas supplies, in a
long-running business relationship which has
made Bolivia the key supplier to the Brazil’s
most populous, industrious and wealthiest
states in the south via the pipeline Gasbol,
the longest natural gas pipeline in South
America at 3,150 kilometers (1,960 miles).
At the time, Abiquim described the
agreements inked in Bolivia as a “historic”
step for Brazil’s chemicals and which, together
with the latest natural gas moves, could pave
the way for a truly competitive sector in the
global stage, said the trade group.
Agreements on fertilizers were also signed as
Brazil, already one of the world’s bread
baskets, continues to post a large trade
deficit in that field.
According to Brazil’s government, the deals in
Bolivia and the decree on the regulatory
environment for natural gas could unleash
investments of Brazilian reais (R) 96 billion
($17 billion) in natural gas, biomethane, and
fertilizer plants, as cited by Abiquim in its
statement following the decree’s passing.
SEVERAL DEALS, LITTLE
RESULTSAbiquim’s lobbying has
been directed where it could make the most
difference: the government and Petrobras,
admittedly achieving more success with the
former than the later.
In its quest for expanding natural gas supplies
and lower prices, Abiquim knocked on Petrobras’
door in 2023 and formed a working
group to explore solutions to the “critical
situation” the chemicals industry was in.
Nothing was heard about that working group, so
this year the two parties gave it another shot
and singed a memorandum of understanding (MoU)
aiming for the same: to find ways of making the
petrochemicals industry more competitive.
So far, nothing concrete has been communicated,
while chemicals remains with its operating
rates at record lows as imports continue
flooding Brazil and the wider Latin America,
with an increase in import tariffs later this
year one of the elements which, according to
Abiquim, could start fixing the beleaguered
Brazilian domestic chemicals production.
“Over the last few months, both teams
(Petrobras and Abiquim) have been concerned
about handling anonymized data from the sector.
Creating a safe environment for members to
access competitive natural gas is Abiquim’s
focus,” said Passos.
“The high volume of natural gas consumption for
the sector justifies the continuation of the
negotiations. We are very pleased with the
technical capacity and fairness of the process
and how it has been handled by both parties.”
Front page picture: Abiquim’s director
general Andre Passos (second from the right) in
Brasilia on 26 August, when the new national
energy and natural gas policies were
signed
Picture source: Brazil’s Ministry of Mines
and Energy
($1 = R5.64)
Insight by Jonathan Lopez
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