Additional reporting by Anna Coulson UK energy price cap for October-December set at £1,717 Q4 cap is £149 higher than the Q3 cap, but has fallen £117 year on year Higher wholesale energy prices for Q1 2025 suggest a price cap rise compared to Q4 2024 LONDON (ICIS)–The UK energy price cap for October-December will increase compared to the previous quarter, energy regulator Ofgem said on 23 August, but remains lower than in the same period one year ago. Introduced in January 2019, the price cap sets the maximum price that energy suppliers can charge end-users for each unit of energy. Ofgem sets the cap based on supplier operating costs, including ICIS wholesale energy price assessments, as well as VAT and network costs. Looking ahead, if forward prices for delivery in the first quarter of 2025 continue at current levels, the wholesale component of the cap for the period January-March is expected to be higher than for the preceding three months. FALLING PRICES ICIS assessed the British NBP gas Q4 ’24 contract at an average 97.069p/th from 20 May to 15 August – the period used by Ofgem to calculate wholesale energy costs for the upcoming cap. This is 17.026p/th lower than the Q4 ’23 contract average over equivalent dates. The year-on-year difference comes as a result of several factors, including a gradual fall from a peak in prices after the Russian invasion of Ukraine and the trade sanctions which followed. Fears of strikes at Australian LNG refineries also pushed up gas prices during 2023, whereas LNG markets were generally more settled in 2024. Due to its significant role in power generation, gas is a key price driver for the UK power market. This means that UK power prices have moved with a similar bearish trend to NBP Q4 ’24 prices, at a discount to Q4 ’23 prices. ICIS assessed the UK power Baseload Q4 ’24 contract at an average £85.65/MWh between 20 May and 15 August, 28% lower than the Q4 ’23 over equivalent dates. The Q4 ’24 power contract is at a premium to its European counterparts which indicates that the UK is likely to import power from neighbouring countries, including France, through the front-quarter. Data from French utility EDF shows that nuclear output is set to average 48.1GW in the period 1 October to 31 December, 7.1GW above the 2019-23 average. Both gas and power Q1 ‘25 prices are currently at a premium to Q4 ’24 prices, which will likely result in a larger wholesale component of the cap for the first quarter of 2025 than for October-December. CAP OUTLOOK On 22 August, ICIS assessed the NBP Q1 ‘25 contract at 7.025p/th above the Q4 ’24 contract and the UK power Baseload Q1 ‘25 contract was £7.10/MWh above the Q4 ’24 contract. Yearly energy prices generally peak around February, when the coldest months of the year increase energy demand for heating. In these months, gas storage facilities start to deplete and disruptions to supply cause larger price rises than at other times of the year. Given the increasing European reliance on LNG, higher prices also attract LNG shipments to Britain ensuring stability of supply. On the power side, French nuclear availability is another key driver for UK power prices through the first quarter. The UK power Q1 ‘25 Baseload contract was €109.47/MWh on 22 August, which is €5.22/MWh above its French counterpart, indicating that the UK is likely to import power from France through the first quarter of 2025. ICIS Power Foresight indicates that French nuclear generation could total 98.6TWh in the period 1 January to 31 March. However, unplanned outages, downward revisions in nuclear availability, and cold weather through the first quarter of 2025 would be potential bullish drivers for French and UK power prices.

LONDON (ICIS)–Senior Editor for Recycling, Matt Tudball, discusses the latest developments in the European recycled polyethylene terephthalate (R-PET) market, including: Blue flake prices rise at the low end in eastern Europe Wide range of views on eastern Europe bale prices Mixed coloured flake demand remains poor September price talks getting underway

LONDON (ICIS)–Business activity in the eurozone rose in August, driven by the services sector, which grew at the fastest pace in four months. Growth in services was largely due to the strongest expansion in France since May 2022 as the Olympics took place in Paris, according to S&P Global’s latest Purchasing Managers Index (PMI) data. This drove the flash services August PMI index to 53.3, up from 51.9 in July, which in turn helped push the HCOB (Hamburg Commercial Bank) composite PMI index to a three-month high of 51.2. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, warned, however, that the uplift could be temporary. “The boost largely comes from a surge in services activity in France, with the Business Activity Index jumping by almost five points, likely linked to the buzz surrounding the Olympic Games in Paris,” he said. “It’s doubtful this momentum will carry over into the coming months, however. Meanwhile, the overall pace of growth in the services sector has slowed down in Germany, and the eurozone’s manufacturing sector remains in rapid decline.” S&P’s August eurozone manufacturing PMI was at an eight-month low of 45.6, down slightly from July. An index figure above 50 indicates expansion and below 50 contraction. Elsewhere, the latest PMI data for the UK showed a significant increase in private sector business activity, with the composite index rising to a four-month high of 53.4. “August is witnessing a welcome combination of stronger economic growth, improved job creation and lower inflation, according to provisional PMI survey data,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

TORONTO (ICIS)–Canada’s federal labor minister has decided to refer the labor dispute between the country’s two freight railroads and labor union Teamsters Canada Rail Conference (TCRC) to the Canada Industrial Relations Board (CIRB) for binding arbitration, he said in a webcast media briefing on Thursday. Steven MacKinnon expects the CIRB to act “with dispatch” and rail services at railroads Canadian National (CN) and Canadian Pacific Kansas City (CPKC), which shut down effective Thursday morning, 00:01 eastern time, should resume within a couple of days, he said. With the decision, the minister reversed his previous position. Just hours before the shutdown took effect, he had said the government would not intervene but leave it to the parties to settle the dispute through the collectives bargaining process, and last week he rejected CN’s call for binding arbitration. However, in Thursday’s press briefing MacKinnon said that he came to the conclusion that the negotiations between the railroads and the union were at an impasse and that collective bargaining was not working to settle the dispute. He therefore decided to direct the CIRB to settle the dispute through final binding arbitration; to extend the terms of the existing collective agreements until new agreements are signed. The CIRB process was “generally a process that does not take longer than two days”, he said. However, he conceded that it was not yet quite clear when exactly rail service will resume, adding that the CIRB was an independent body that follows its own procedures. The CIRB is a quasi-judicial tribunal charged with keeping the industrial peace in Canada. The government has come under intense pressure from trade groups in Canada and the US and from Canadian provincial premiers (governors) to take quick action to end the shutdown, which threatened the economy and trade relations with the US. MacKinnon acknowledged the concerns raised by the chemical and fertilizer industries about supplies of chlorine to treat drinking water and the supply of potash fertilizer to farmers. It was up to the government to ensure that shipment of chlorine and fertilizer were not disrupted, the minister said. The railroads had stopped accepting shipments of chlorine and other hazardous materials well ahead of the 22 August shutdown. Meanwhile, LyondellBasell on Thursday declared force majeure on all rail shipments to Canada and industrial chemical producer Chemtrade Logistics warned about impacts from the rail disruption on its financial results. With additional reporting by Adam Yanelli Thumbnail photo source: CN 

HOUSTON (ICIS)–In light of the recent surge of ocean freight rates, US plastic scrap trade has slowed some to overseas destinations, but still remains robust within North American borders. Albeit lower this quarter, polyethylene terephthalate (PET) plastic scrap in particular continues to be strong in import and export volumes amid a moderate domestic market. US remains a net importer of plastic scrap US PET scrap imported decreased 11% Q2 2024 vs Q1 2024 US PET scrap exported increased 62% Q2 2024 vs Q2 2023 IMPORTS SLOW ON GLOBAL FREIGHT, PET REMAINS STRONG Q2 2024 trade data from the US Census Bureau shows US imports of plastic scrap – noted by the HS code 3915 – have fallen 10% quarter on quarter, but still having increased 7% year on year when comparing with Q2 2023. Plastic scrap imports include items such as used bottles, but also other forms of recycled feedstock such as purge, leftover pairings and now also flake material. Imports totaled 114,969 tonnes in Q2 with drops seen across the major polymer groups for US scrap import. Polyethylene (PE) scrap was down 13%, while polyethylene terephthalate (PET) scrap was down 11% quarter on quarter. Based on volume alone, the drop in PET imports by 6,857 tonnes is the largest contributing factor to the overall decrease. While imports from Canada and Mexico still dominate total volumes, when looking at PET specifically, imports from Mexico have dropped off significantly. Top sending countries for PET scrap are Canada, followed by Thailand, Ecuador, Japan, Indonesia and Honduras as of the 1H2024 data. This means less than 25% of US PET scrap imports came from North America, while over 43% of PET imports originated from Asian countries, a reversal of the statistics seen just two years prior. While down quarter on quarter, PET scrap imports are still elevated in comparison to previous years, up as much as 24% year on year. As of Q2 2024, PET makes up 50% of all US imported plastic scrap, followed by the “other” plastic scrap category at 29% and PE scrap at 13%. US recycled polyethylene terephthalate (R-PET) market participants confirm they have seen a notable rise in imported R-PET activity from Asia and Latin America, particularly due to their cost-competitive position when it comes to feedstock, labor and facility costs. Though towards the back half of Q2, ocean freight rates did substantially rise, likely curtailing the window of cost competitiveness for many. Typically, imports from these overseas locations must be ordered weeks, if not months, in advance, and so Q2 import volumes largely represent demand from one to two months prior. Even with higher ocean freight rates today, US converters and recyclers continue to buy imported flake and pellet to supplement operations, as it remains cost-competitive in most cases. R-PET demand on the East Coast has continued to strengthen during the summer months and is now looking solid through the end of the year, a deviation from the typical seasonal demand pattern. Though imports come with additional transportation and cost risk, players accept that international supply is now woven into the fabric of the market, much like with virgin PET. PET EXPORTS SURGING, OTHER PLASTICS SEE WEAK GLOBAL MARKETS Despite the desire for a growing domestic recycled plastics market, feedstock material continues to bleed out of the country, specifically PET bales. US exports of plastic scrap have increased 5% quarter on quarter to a total of 112,385 tonnes, while PET scrap exports have increased 18% quarter on quarter, and a whopping 62% year on year. Though the US has always exported a portion of domestic bale material to other countries, including Mexico and some in Asia,  exports to Mexico have surged in the last 10 months. This growing trade relationship is largely attributed to new capacity in Mexico, paired with strong local demand which has elevated local bale prices. As a result, Mexican recyclers have been purchasing US PET bales as a lower cost option with high availability. Overall, exports of other types of plastic scrap continue to slow, following the Chinese National Sword and Basel Convention adoption several years ago. PE continues to be a leading polymer type for US plastic scrap exports, coming in at 33,556 tonnes in Q2 2024. According to 1H24 total PE imports, India is the largest destination at 25%, followed by Indonesia at 15% Canada at 14%, and Malaysia and Vietnam tied at 13%. As of this past quarter, the US remains a net importer of plastic scrap.

HOUSTON–Global chemicals major LyondellBasell has declared force majeure on all rail shipments to Canada after that country’s two largest railroads shut down operations after negotiations for a new collective bargaining agreement stalled. The shutdown at Canadian National Railway (CN) and Canadian Pacific Kansas City (CPKC) began at midnight eastern time on Thursday, with more than 9,000 workers locked out after failing to reach an agreement with their employees’ union. CN and CPKC have issued all-commodity embargoes, according to US railroad Norfolk Southern (NS) in a service alert. The embargos from CN and CPKC cover all NS originated traffic destined for Canada and all Canadian originated traffic destined for NS destinations for all commodities. US railroad CSX issued an embargo on all shipments to and from CN and CPKC that contain highly hazardous, toxic inhalation hazards and poisonous inhalation hazards such as chlorine gas, which is used for water treatment. Container shipping company Hapag-Lloyd told customers it has ships in various stages of loading and unloading in Vancouver, Canada but has three vessels on various services that are under review because of the rail disruption. On 21 August, the carrier said it is ceasing taking new rail bookings originating in the US and loading via a Canadian gateway. Following is a map of the rail network and main chemical production hubs in Canada. BACKGROUND The simultaneous rail disruption at CN and CPKC has been looming over the chemical and other industries for months. Canada’s chemical production is heavily geared towards export, with 80% destined for foreign markets – primarily the US, accounting for 80% of exports. Rail transportation plays a crucial role, handling over 70% of Canadian chemical producers’ shipments, with some relying entirely on rail. Officials from the chemical and other industries have repeatedly warned about the impacts simultaneous disruptions at both railroads could have on Canada’s already weak economy and on trade with the US. With additional reporting by Nurluqman Suratman and Stefan Baumgarten Thumbnail photo: A Canadian National train. (Photo by Shutterstock)

TORONTO (ICIS)–As the unprecedented work stoppage at both of Canada’s freight railroads began on Thursday at 00:01 Eastern Time, it remains unclear how or when it may end as the government is reluctant to intervene. Long-awaited rail shutdown starts Government reluctant to intervene Industry warns of economic and public health impacts Following lockout and strike notices, more than 9,000 workers at railroads Canadian Pacific Kansas City (CPKC) and Canadian National (CN) were locked out at midnight, labor union Teamsters Canada Rail Conference (TCRC) and the rail companies confirmed. TCRC said that the parties were still far apart in their negotiations but added that it would remain at the bargaining table. CPKC called on the government for binding arbitration to end the dispute, but Canada’s federal labor minister last week already rejected a similar call by CN. Speaking to Canadian public broadcaster CBC/RDI a few hours before the rail shutdown began, minister Steven MacKinnon said that the government would rely on the collective bargaining process to resolve the dispute, which is about wages, benefits, work scheduling and safety issues. Collective bargaining was “a tried-and-true method” that helped create prosperity for Canadian companies and workers and build the country over decades, he said. “It works when people put the work in that is required to get a deal, to make those compromises at the table, and those are the most enduring results, and that’s our plan, that’s the only plan,” the minister said. Asked about using “back-to-work legislation” to end the dispute, he noted that Parliament is currently not sitting. However, the government was “always prepared for any eventuality”, he indicated but did not provide details. INDUSTRY SAYS GOVERNMENT MUST ACT NOW Canadian and US trade groups, including the US Chamber of Commerce, have called on the Canadian government to step in and end the dispute, potentially through binding arbitration, or if need be, back-to-work legislation. The two railroads each day ship goods worth more than Canadian dollar (C$) 1 billion (US$735 million), and the shutdown threatens to shut down the country’s entire economy and harm trade with the US, the groups said. Bob Masterson, president of trade group Chemistry Industry Association of Canada (CIAC), said that the rail disruption was no longer an ordinary labor dispute that could be resolved through bargaining between two parties, with the government standing on the sidelines, but rather involved important public safety and health issues. One of the railroads stopped accepting critical chemicals, in particular chlorine and derivatives for use in drinking water, already on 12 August, as it began winding down operations ahead of the work stoppage, and the other railroad stopped accepting those products shortly afterwards, he said. With about 95% of the population relying on treated drinking water, as of 12 August the rail dispute therefore became “the interest of every Canadian across the country”, Masterson said. Due to its dangerous nature, under law chlorine can only be moved by rail, he noted. The country was “on the road to a public health crisis” and municipalities may soon need to issue water boil advisories, “if you don’t interrupt this now and return service on the railways,” he said. “The train towards a crisis is moving, it gets faster and harder to stop every day, and the time to stop it is now, and the only people that have the responsibility and the tools and authority to do so are the government of Canada,” he said. The chemical industry was at the front end of this supply squeeze, “and we want all elected officials to be focused on that”, he added. HARM TO THE ECONOMY In a separate statement to ICIS, trade group CIAC reminded of the impacts of the rail disruption on the overall Canadian economy, the chemical industry, and chemical trade with the US. In Canada, about 80% of chemical production goes into export, with about 80% of those exports going to the US, according to CIAC. At the same time, Canada-based chemical producers rely on rail to ship more than 70% of their products, with some exclusively using rail. US-Canada chemical trade, 2023: Canadian exports of industrial chemicals to the US: Canadian dollar C$18.9 billion, according to CIAC data. Canadian imports of industrial chemicals from the US: C$17.5 billion. More than C$76 million of industrial chemical products move on Canada’s rail network daily, which comes to about C$28 billion a year. Industrial chemicals include basic chemicals, synthetic resins, rubbers and synthetic fibers. Chemicals account for nearly 10% of total Canadian freight rail traffic. Furthermore, the chemical industry’s customers in the automobile, forest products, construction, minerals and other industries rely on rail to ship their products. According to estimates by the Conference Board of Canada, a two-week rail shutdown would result in a C$3 billion loss in nominal GDP this year. A four-week shutdown could lower GDP by nearly C$10 billion in 2024 and result in nearly 50,000 job losses, the board said. The lost income would be felt by households, businesses and government, the board said. Canada’s trucking industry was not a viable alternative to rail as it does not have the required capacity or enough drivers, the board noted. Industry commentators said that the government could not allow the rail stoppage to last more than 7-10 days, after which it would likely need to use back-to-work legislation or binding arbitration to end the dispute. However, binding arbitration takes time, and even with Parliament sitting and working at an expedited pace, it would take a couple of days for back-to-work legislation to become law. In another complication, Prime Minister Justin Trudeau’s Liberal-led minority government relies on support from the left-leaning New Democratic Party (NDP) to keep it in power. The NDP, however, is close to labor unions and has warned Trudeau against imposing binding arbitration or back-to-work legislation. While the work stoppage started on 22 August, its negative impacts for chemical producers and other industries kicked in earlier as they needed to rearrange logistics and prepare for potential plant shutdowns. In the chemical industry, it can be costly to ramp down and restart large petrochemical plants as they are in continuous operation and require a reliable, uninterrupted rail service. Depending on how long a rail disruption lasts, it can take weeks, if not months, for the chemical producers to get production rate back to normal. The following table by the American Association of Railroads (AAR) shows Canadian freight rail traffic, including chemicals, for the week ended 17 August and the first 33 weeks of 2024: (US$1 = C$1.36) Thumbnail photo source: CN Focus article by Stefan Baumgarten

SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson. Whereas it might be reasonably straightforward to assess the future of China’s direct chemicals exports (today I look at polyester fibres and polypropylene as examples of the kind trade tension Heat Maps you need to create), the outlook for China’s exports of manufactured goods is murkier. See today’s blog post for a full explanation, and the see the summary below: In practical terms, because China completely dominates some manufacturing chains, there may be no alternatives to China. It could be in the best interests of the West to do “win, win” deals with China. Take electric vehicles as an example. If you assume that EVs are going to dominate the EU market, and that the EU auto industry cannot catch up with China, why not invite China in to build EV factories in the EU, thereby protecting local jobs? This is what the Americans did with the Japanese auto industry back in the 1980s. Or industrial policy could work in the opposite direction as the China split with the West widens. A good example is the US Inflation Reduction Act. This might over the long-term even apply to value chains where China dominates including EVs. The split could widen to the point where we are much less dependent on China for everything from our smartphone components to our polyester shirts. Or in practical terms, will, as I said, deals be done and the world muddles through via Chinese car factories in Europe and exports from third-party countries like Turkey, Vietnam and Mexico? (Chinese components go to these countries, are assembled and move onto the West, thereby getting around the “sound and fury” signifying not a great deal of antidumping duties. This to some extent is already happening).Now that the Chemicals Supercycle is over, much more in-depth scenario planning is essential. 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.

MUMBAI (ICIS)–India’s Chemplast Sanmar plans to invest rupee (Rs) 1.6 billion ($19 million) to expand the capacity at its custom manufactured chemical division (CMCD) at Berigai in the southern Tamil Nadu state. The increase in capacity will help the company cater to growing demand in various industrial sectors, a company source said. Chemplast commissioned the first phase of the CMCD in September 2023 and expects to bring the second phase on stream by September 2025, the source added. The CMCD project which produces advanced intermediates for the agrochemical, pharmaceuticals and fine chemicals segments, will help the company expand into fine chemicals and pharmaceuticals, broaden its portfolio and access new markets and customers, he said. “We have recently signed a new letter of intent (LOI) with an agrochemical innovator for an advanced intermediate for a new active ingredient. This is the fifth LOI that we have signed over the past 20 months,” the source added. In addition to the CMCD division, Chemplast has a production capacity of 107,000 tonnes/year of specialty paste polyvinyl chloride (PVC) from its units at Cuddalore and Mettur in Tamil Nadu. Chemplast’s wholly owned subsidiary Chemplast Cuddalore Vinyls Ltd operates 331,000 tonnes/year of suspension PVC capacity in Tamil Nadu. The company also produces caustic soda, chlorochemicals, hydrogen peroxide at its three manufacturing facilities in the Tamil Nadu state and in Karaikal in the union territory of Puducherry. ($1 = Rs83.94)