MADRID (ICIS)–EU measures to prop up its industrial fabric are going in the right direction, with some key demands of the chemicals industry now worked into regulation. Still, more is needed if the 27-country bloc is to salvage what remains of its thriving industrial region, according to Juan Labat, director general at Spain’s chemicals trade group Feique. Labat said moves to slow the implementation of the Green Deal are not destined to kill the plan in all but name. He said chemicals remain fully behind the spirit of the Deal, but pointed out that some of its time frames are too tight. In Spain, the cabinet is preparing an Industrial Policy regulation to be passed after the summer recess in Parliament: Labat praised the law – if anything, because it is the first of its nature in four decades, he said. In the second part of this interview to be published on 2 August, Labat expands on good fortune favoring Spain’s chemicals. The industry is displaying robust growth, despite the many challenges the global economy has faced in the past four tumultuous years, with Spanish unemployment falling and consumer spending strong. The second part will also touch on Feique’s relationship with the main chemicals trade unions. Chemicals is in Spain almost an exception in which entrepreneurs and their workers tend to largely agree on collective bargaining as well as demands they take to the government as a sector. There was an exception this year where a small dispute on wages ended in the National Court with the judge ruling in favor of workers. THE EU UMPTEEMTH INDUSTRIAL PLANThose who follow the EU’s industrial policies – admittedly, not an attention catching topic for most Europeans but such an important one as the region is aiming to lead the green economy in coming decades – may recall how in 2022 when the US passed the Inflation Reduction Act (IRA). This move by the US threw its EU neighbour across the Atlantic off guard. At the stroke of a pen at the Oval Office and a budget of slightly more than $300 billion dollars – small compared to some of the EU’s plans in the past four years – the US swung its doors open to large green investments. The US, of course, also benefits from lower energy costs thanks to its renewed status as a global producer of crude oil and natural gas. The US’s IRA and China’s focus to heavily subsidize sectors such as solar energy and electric vehicles (EVs), making them world leaders, forced the EU to wake up to the fact that its Green Deal, a decent attempt at least on paper to fight climate change, needed some tweaks here and there. One big tweak, long demanded by the industry, has been the so-called contracts for difference, which Labat praised as they contemplate state support for companies while they drop old polluting technologies and adopt new ones, where costs are still much higher. But Labat was not that positive about the overall implementation of the Green Deal which, as so many EU stories before it, kept being changed by Members of the European Parliament (MEPs) or even by the European Commission which had approved the initial Green Deal in its role as the EU’s executive branch. Labat is sanguine about, for example, changes to the deadlines in which polluting technologies must be phased out by, which overall creates high uncertainty for many businesses which want to go greener but are fearful of failing along the way if the public authorities and their regulations are unstable. “What we saw, for example, with Green Deal targets for certain technologies to be phased out by 2035, which soon after the Deal’s passing were changed to 2033: that is simply not serious and the opposite of legal certainty,” said Labat. “We want to go greener, but it would help if the authorities understood the huge undertaking this will mean. And, obviously, companies in our sector don’t work out their capex plans with just a short or medium term in mind: those assets are planned for several decades.” In perhaps a sign the pendulum is swinging, the EU or some of its members at least find itself mulling the delay of some of those initially very ambitious targets. After years in which the chemicals’ lobbying in Brussels seem to fall on deaf ears, trade group Cefic and its national association feel vindicated, finally. Labat was asked, however, if delaying targets – which potentially could be delayed again and again, according to the circumstances – is not pure and simple giving up on the Green Deal, which foresaw a net-zero EU economy by 2050. “Absolutely not – we are still very much behind the Green Deal. But I think the world of 2020 looks very different to the one now, just four years in, and more and more people are agreeing that some short timeframes to face out technologies were impossible and, in the end, could hurt the industry in the EU more than benefit it,” said Labat. “The Green Deal is a good framework, but for it to succeed it cannot be changed practically every month: that only creates uncertainty and I fear if that’s the norm, more and more may decide to set camp elsewhere with their green capital expenditures [capex]. We have a Green Deal, with clear objectives, let’s work on it, let’s develop it – but don’t keep changing it all the time.” The Green Deal did look very good on paper – less good seem to have been the implementation policies linked to it, said Labat. The ‘contracts for difference’ apart, Labat said the EU still must understand the industry needs better and work on energy costs, which remain the highest among the large world’s chemicals producers. SPAIN NOVELTY: AN INDUSTRIAL POLICYThe Spanish governments in office in the 1990s and 2000s did not have industry as a key sector to protect and prop up, the world’s own dynamics not helping either as many companies thought at the time moving production to cheaper Asian countries – China – was simply too good of a business plan. Spain rested on its laurels in industrial policy, while witnessing and ripping the benefits of its services-heavy economy: its tourism prowess being the prime example and a sector which, year after year, hits records. Over the past 30 years, the tourism sector has more than doubled. In 1995, 33 million visitors visited Spain. By 2023, 85 million did so. This news story by Spanish financial newspaper Expansion shows the data. But many in Spain see tourism also as a curse. Many economists say that for a country’s economy to be successful, its manufacturing sectors should account for 20% of its output. Many countries in the EU – France and Spain two of them – have seen their industrial sectors fall to levels of around 10-13% in the past three decades. There comes in the current coalition cabinet of the center-left Socialist Party and the far-left Sumar party: industrial workers are supposed to be one of its main constituencies, so scoring goals on that front is in their own interest. The cabinet and chemicals are on the same page on this one, although Labat recognized the fact that an Industrial Policy in itself is a novelty and, because of that, the way it is implemented will be key and success is not guaranteed. Overall, Feique likes what he is hearing. “There have been so many Industrial Policies which ended up literally not being worth the paper they were written on. And I think that’s linked that many of them generated frustration among those they were aimed at. Also, many of them seemed to fail to grasp that an ‘industrial policy’ worth the name must be transversal and practically have involved all ministries and authorities: it cannot be small, scattered measures here and there,” said Labat. “It must look and energy and its costs, at employment, and many other issues. The current thinking in the government is indeed for the regulations not to finance or implement specific measures. Instead, it will create government agencies which will oversee the policy’s implementation. “It contemplates a six-year industrial policy, split in three-year plans, and it’s in those plans where specific and sectorial measures will be implemented. Overall, we are liking what we are hearing. But we are also pragmatic, and past experiences tell us Spain has not precisely been an example of industrial policy success. Touch wood this time it is – chemicals would benefit so much if the things described above end up being implemented and, crucially, they work for everyone involved. “Finally – we are talking about a draft proposal for now: we will need to see what the law looks like and, more importantly, what resources are allocated to the specific measures set to be announced.” Interview article by Jonathan Lopez  

SINGAPORE (ICIS)–In 2012-2023, China’s hydrogen production more than doubled, with 80% of its 2023 output derived from coal and natural gas. With refineries playing a crucial role in the country’s overall hydrogen production, the ongoing shift toward chemical production is set to further boost demand. This trend is expected to accelerate the adoption of cleaner blue and renewable hydrogen sources in refineries. Join ICIS Asia deputy news editor Nurluqman Suratman, ICIS hydrogen principal analyst Patricia Tao and ICIS hydrogen senior analyst Anita Yang as they discuss the increasing importance of hydrogen in China’s refining sector.

SINGAPORE (ICIS)–South Korea’s petrochemical exports rose by 18.5% year on year by value to $4.19 billion in July, supporting the overall growth in total shipments abroad, official data showed on Thursday. The country’s total exports rose by 13.9% year on year to $57.5 billion in July, following a revised 5.1% gain in June, the Ministry of Trade, Industry and Energy (MOTIE) said in a statement. South Korea’s export growth streak has now reached 10 months, but a rebound in imports has trimmed the trade surplus, potentially weighing on GDP growth in the current quarter. South Korea’s economy posted a slower Q2 annualized growth of 2.3% compared with the 3.3% pace set in the preceding quarter amid sluggish domestic consumption. Imports were up by 10.5% at $53.9 billion, reversing the 7.5% drop in June, resulting in a July trade surplus of around $3.6 billion. South Korea’s trade balance from January to July ballooned by $51.2 billion, hitting a record high not seen since 2018. Exports to China reached $11.4 billion in July, a 14.9% year-on-year increase and the highest in 21 months, driven by growing demand for semiconductors, wireless communication devices, and other IT items as the industry’s recovery continues. This marks the fifth consecutive month that exports to China have exceeded $10 billion. As a result, South Korea’s total exports to China from January to July this year reached $74.8 billion, a 6.7% increase and the highest among all export destinations for the period. The country’s exports to the US set a new record for July at $10.2 billion, a 9.3% increase. South Korea’s exports to southeast Asia reached $9.9 billion in July, a 12.1% increase, driven by strong demand for major export items such as IT products, petroleum products, and petrochemicals. This marks the fourth consecutive month of growth in exports to ASEAN nations. Exports to India increased by 13.4% to $1.6 billion, while those to the Middle East jumped by 50.6% to $2.2 billion for the second consecutive month and exports to Japan rose by 10.1% to $2.6 billion. South Korea’s energy imports in July rose by 11.9% year on year to $10.9 billion, fueled by a 16.1% increase in crude oil shipments and a 23.8% rise in gas imports. MANUFACTURING DIPS Separately, the S&P Global South Korea manufacturing purchasing managers’ index (PMI) released on Thursday declined from 52.0 in June to 51.4 in July, indicating a slowdown in the sector. Although output and new orders continued to grow, rates of expansion eased to their lowest levels in three months. A surge in new product launches drove up orders, particularly from overseas clients, as domestic demand remained sluggish. Consequently, new export orders continued to grow for the seventh consecutive month, fueled by robust demand from southeast Asia, the US and Japan. “Together with today’s weaker-than-expected exports and softened business surveys, we are wary of a possible moderation in exports in the near future,” Dutch banking and financial information services provider ING said in a note. “However, export details – by product and by destination – are quite encouraging so far, thus it is still too early to conclude that export momentum is trending down.”

NEW YORK (ICIS)–The US chemical industry, along with other interest-rate sensitive sectors, is poised to get a lift as the US Federal Reserve moves closer towards its first interest rate cut – a move increasingly likely in September. “The economy is moving closer to the point at which it will be appropriate to reduce our policy rate,” said Fed chair Jerome Powell at the FOMC press conference. “The question will be whether the totality of the data, the evolving outlook and the balance of risks are consistent with rising confidence on inflation and maintaining a solid labor market. If that test is met, a reduction in our policy rate could be on the table as soon as the next meeting in September,” he added. The economy is seeing broader disinflation today, including now in both housing and non-housing services, compared to last year when it was centered on goods. FOCUS SHIFTS TO LABOR MARKETAfter being laser-focused on bringing inflation down to its target of 2% for the past couple of years, the Fed is now more confident on progress towards this goal and is thus focusing more evenly on its dual mandate of maximum employment as well as price stability. “When we were far away from our inflation mandate, we had to focus on that. Now we’re back to closer to an even focus,” said Powell. “You’re back to [labor] conditions that are close to 2019 conditions, and that was not an inflationary economy… We don’t think of the labor market in its current state as a likely source of significant inflationary pressures,” he added. Powell said he does not want to see further material cooling in the labor market. Unemployment has ticked up to 4.1% today versus a low of 3.4% in April 2023. Other measures have also indicated softening, including the Employment Cost Index (ECI) and the Job Openings and Labor Turnover Survey (JOLTS) report. In the latest JOLTS report, the ratio of job openings to number of unemployed remained at 1.2x, basically back to pre-pandemic levels. The number of hires also ticked down. CHEMICAL INDUSTRY AWAITS RATE CUTSA rate cut in September, along with guidance of further cuts to come, would be welcome news for the chemical sector as the long-anticipated H2 2024 recovery is pretty much dead, according to comments on Q2 earnings calls. Dow chief financial officer Jeff Tate told ICIS he expects weakness in building and construction (B&C) and consumer durables demand to persist through 2024, and that substantial rate cuts are needed to kick start demand. “In terms of the timing [of a meaningful recovery] going into 2025, from our vantage point, we think it’s going to take some substantive interest rate movement,” said Tate. “If mortgage rates are in that 7%-plus range, we probably need to start to see that trending towards a 5%-type of handle to really get that sizeable movement – to really release some of that residential housing momentum that is impacting consumer durables,” he added. Several chemical companies cited ongoing weakness in residential building and construction on their Q2 earnings calls. High interest rates have hurt affordability for housing, not only dampening sales of new homes, but existing homes as those with low-rate mortgages from purchasing or refinancing during the pandemic are disincentivized to move – locked in their so-called “golden handcuffs”. The stock market, including chemical stocks, rallied hard into the Fed press conference and maintained their gains through the close. In the past couple of weeks, chemical and other economically sensitive stocks have caught a bid in anticipation of the Fed preparing to ease. LONG AND VARIABLE LAGSJust as there are “long and variable lags” to when the economy responds to rate hikes, as we are seeing with the easing of inflation and the labor market today after the Fed finally stopped hiking rates after July 2023, it works the same for rate cuts. It will take time for the economy to respond favorably to rate cuts as well and thus the risk of recession is not off the table. However, the Fed is confident it is in a good position to deal with unexpected weakness. “We’re certainly very well positioned to respond to weakness with the policy rate at 5.3%. We certainly have a lot of room to respond if we were to see weakness,” said Powell. Insight article by Joseph Chang

HOUSTON (ICIS)–The Federal Reserve flagged on Wednesday the threat of rising unemployment, opening the prospect of the first rate cut since it started its campaign to get inflation back to its 2% target. “The economic outlook is uncertain, and the committee is attentive to the risks to both sides of its dual mandate,” the Federal Reserve said. The Federal Reserve is charged with keeping inflation under control and promoting maximum employment. If the Fed is concerned about unemployment rising too quickly, it could loosen monetary policy by lowering the benchmark federal funds rate. It voted on to keep the rate steady at 5.25-5.50%. However, its comments opened the prospects of a cut during its next meeting scheduled for September 18. In its latest statement, the Fed noted that the labor market has softened. Job gains have moderated, and the unemployment rate has moved up, although it remains low, the Fed said. Also, the fed said that inflation remains “somewhat elevated”. During its last rate-setting meeting in June, the Fed said that job gains have remained strong, and the unemployment rate remained low. Moreover, it said that inflation remained elevated without qualifying it.

MADRID (ICIS)–Latin American petrochemicals prices remain in the doldrums due to global oversupply, but domestic producers are hoping a sustained increase in freight costs and protectionist measures could start improving their dented market share. Petrochemicals in the world’s quintessential ‘price taker’ region – Latin America remains a net importer and therefore is at the mercy of global price swings – have had some of the toughest years in memory: high levels of lower-priced imports have heavily reduced operating rates in the region. In Brazil, producers’ operating rates stood in May at a record low of 58%, according to the country’s chemicals trade group Abiquim. The story repeats itself in most Latin American countries, perhaps with the only exception of Mexico. There, the government increased import tariffs in several chemical products and the country’s North American status makes its petrochemicals industry less prone to the woes its southern neighbors have to deal with. Still, Braskem Idesa, the largest polyethylene (PE) producer in Mexico, has not been able to avoid the competition from imports from Asia and the US in a much-oversupplied polymers market, with its sales and profit also hit by the situation. Most economists believe Argentina’s GDP is going to fall around 4-5% this year, with a stronger rebound in 2025. However, most petrochemicals suffered heavy falls in demand this year of around 40%, according to some sources. In Latin America as a whole, players in the PE and polypropylene (PP) markets, two of the most widely used polymers, expect little improvements in demand in coming months, under a global oversupply which is expected to remain or even widen as yet more capacities come on stream. BRAZIL: THIRST FOR GASPetrochemicals producers in Latin America’s largest economy, Brazil, have been losing market share for the past two years as China’s dumping of its oversupplied chemicals to the rest of the world continues apace. The chemicals trade group in the country Abiquim, in which polymers major Braskem has a commanding voice, grasped its opportunity when President Luiz Inacio Lula da Silva took office in January 2023. Abiquim started then a lobbying campaign for higher import tariffs – the previous liberal-minded administration of Jair Bolsonaro had lowered them – to protect domestic producers’ market share, but also calls about high natural gas prices which, producers say, is making the industry uncompetitive in the global stage. Lula’s cabinet, whose declared aim is to create more and better industrial jobs, has listened to Abiquim and in 2023 raised tariffs twice, and another increase is widely expected by September after a public consultation in which the industry – Abiquim as well as individual companies – requested increasing tariffs in more than 100 chemicals. On the other hand, a coalition of a variety of trade groups who import most of the chemicals they use in their manufacturing processes – plastics converters, for example – have been lobbying on the opposite direction: for tariffs to stay unchanged or, in their best scenario, even lowered. In natural gas, Brazil’s prices are admittedly much higher than the US’, the other large Americas’ chemicals market. According to Abiquim, they are five times higher, although that multiple varies according to the obvious gas price swings. In June, Lula and several ministers went to gas-rich Bolivia to sign deals to increase imports of natural gas as well as fertilizers, taking with them several executives from manufacturing trade groups; Abiquim’s head, Andre Passos, was part of the entourage. Only time will tell if, as Abiquim put it, the deals for natural gas end up representing a “historic step” for chemicals in Brazil, who supposedly could sharply lower their gas costs if more supply from Bolivia – and potentially from Argentina – went to Brazil. Despite this progress, Brazil’s industrial sectors continue to import chemicals because they are simply not produced in the country, which imports nearly half of all the chemicals it uses in its factories: the country lacks special chemicals production which, in times of crisis, could help it weather global downturns. As a consequence, the three main chemicals producers, mostly producing basic chemicals or polymers, have been hit hard by the global downturn. Braskem and Unipar’s financial results continued suffering in the first quarter of 2024, while Unigel remains involved in a battle for its survival after its natural gas-based fertilizers division, combined with the downturn in the chemicals division as well as a high debt burden put its finances against the wall. Unipar and Braskem are set to publish second-quarter financial results in coming weeks. Unigel has not released financials since Q1 2023, an option allowed by Brazil’s financial regulations for companies in financial distress. The severe floods that affected Brazil’s southernmost state of Rio Grande do Sul in May are likely to hit the country GDP growth in 2024, although bodies such as the IMF expect a strong rebound in 2025 as reconstructions efforts gather pace. While mostly out of the media spotlight by now, the floods were Brazil’s worst ever and its images will remain etched in Brazilians’ retinas for years. They left 182 dead, with 29 people still unaccounted for. Nearly 2.5 million people were affected at the peak of the crisis in the 11.5-million-strong state and its economy came to a standstill during May. Brazil’s vast geography makes it prone to be victim of a variety of weather phenomena which are only set to increase in number and severity as climate change continues its course. Experts agree the country needs to step up its climate change adaptation measures. IMF estimates (in %) GDP growth 2024 GDP growth 2025 Difference with April forecast 2024 Difference with April forecast 2025 Brazil 2.1 2.4 -0.1 0.3 Mexico 2.2 1.6 -0.2 0.2 Latin America and the Caribbean 1.9 2.7 -0.1 0.2 SHEINBAUM INCOGNITAIn October, Mexico’s Claudia Sheinbaum will take over as president from Andres Manuel Lopez Obrador, who handpicked her for the role. Sheinbaum will be sworn in after 60% of her compatriots backed  her, with her Morena party achieving in parliament a supermajority of two thirds of seats. The IMF also downgraded its GDP growth forecast for Mexico in 2024, as the presidential transition takes place and until Sheinbaum’s policies become clearer but upgraded them for 2025. Energy policies, greenhouse gas (GHG) emissions, and the burden of the overindebted crude oil state-owned major Pemex will be on the spotlight. Mexican manufacturing is showing signs of a slowdown due to internal policy but also because of the US November election, where the export-intensive economy sends most of the goods it produces. The downturn in the US manufacturing sectors remains, with its Mexican peers taking the collateral damage. Corporate Mexico was never too fond of Lopez Obrador’s left-leaning rhetoric, although the president did not really change much in the economic fundamentals. In public, and for now at least, companies think Sheinbaum will be a better ally for the private sector, although many still fear what she may do with the supermajority backing her in parliament. One-party constitutional reforms are possible. In an interview with ICIS, Sergio Plata, an executive at Braskem Idesa, said companies are liking the tune of Sheinbaum’s first steps as president-elect, and praised her visit to the petrochemicals hub of Veracruz after winning the election, in which she showed deep knowledge of the chemicals industry and its needs, he said. Despite enjoying better operating rates than its Brazilian peers and certain protection from higher import tariffs, Mexican petrochemicals producers also continue to be hit by the global downturn in the sector. Apart from the aforementioned Braskem Idesa, Mexico’s largest chemicals company Alpek and Orbia posted poor set of results for the second quarter. ARGENTINA REVIVAL?Many economists in Argentina and outside it have come to think the country has no solution as its economy became dysfunctional under a subsidy-dependent, corruption-prone, and closed to imports system where the large middle classes are now just a distant memory. According to official figures, around 60% of Argentinians live in poverty. The country’s demise is studied in business schools as a case of a developed economy which downgrades to emerging economy status. In December, however, Javier Milei was sworn in as president under the promise of turning the country upside down and make it a liberal bastion, with a largely deregulated economy. While his shock therapy has caused havoc, he is still backed by most Argentinians: the dislike for the previous failed administration and its mismanagement remains latent, and Milei had warned during the campaign the changes would be painful. While the economy may rebound strongly in 2025, petrochemicals are not expected to benefit much from it, as the recovery is expected to be led by export-intensive and foreign reserves-generating sectors such as crude oil, agriculture, or mining. The petrochemicals-intensive manufacturing and construction sectors have been hit the hardest by the recession. Inflation has started to slowly fall, but it remains at an annual rate of 271%. Petrochemical sources in the country are already bracing for more hardship in 2025, with demand expected to fall again. Indeed, it will take many quarters for consumers to have the means and the confidence to buy higher-priced and petrochemicals-intensive durable goods. “Everyone is wondering for how long people can take the shock therapy. If the changes implemented by Milei bear fruit, Argentina could be a completely different, and perhaps better country,” said in July a source at a distributor in the country. “But will he achieve what he is proposing? I am not that certain.” MADURO DRAGS ONVenezuela may also end up being studied in business schools’ textbooks, having gone in just three decades from powerful oil exporter to poor nation, plagued by insecurity, with a third of its population gone abroad since 2015, and with a president who is a dictator in all but name. The country’s demise started in the 1990s and worsened after the socialist PSUV party took over in 2001, first under Hugo Chavez and later under Nicolas Maduro. On 28 July, the country held an election with hopes it could be free, unlike the 2018 election which gave the PSUV got more than 95% of seats in parliament and which ultimately made Venezuela a pariah country. Several analysts and even opposition figures in Venezuela hinted that, if Maduro lost the election, he could be given the option to leave for exile in some of the few allies he has – Cuba and Russia recurrently mentioned – allowing Venezuela to start afresh. Opinion polls consistently showed Maduro was on course for a defeat. Turnout on 28 July was high, and long queues of Venezuelans at the polling stations drew a picture of thirst for change. However, when the official results came in, most Venezuelans realized the election had just been yet another farce. The government said Maduro had renewed its mandate with 51.2% of the votes, with the main opposition candidate at 44%. Few countries have recognized Venezuela’s result yet, apart from some of Maduro’s allies, some of them global pariahs themselves. Even China, tired of lending Venezuela large sums which it fears it will never get back, has not been unfriendly to opposition leaders. The US, the EU, and traditional allies in Latin America such as Colombia’s Gustavo Petro, Brazil’s Lula, or Chile’s Gabriel Boric had also said a recount should take place again with full transparency; the very demand coming from the opposition since the official results were announced. The coming days and weeks are crucial. However, after years of demise, Maduro’s exile, if it happens, would only represent for most Venezuelans a small glimmer of a very distant light at the end of a very dark tunnel. Front page picture: Brazilian President Lula (right) meets chemicals industry representatives in Brasilia in May, including Abiquim’s director general Andre Passos (right, behind Lula) Picture source: Abiquim Insight by Jonathan Lopez

UK government announced a budget boost of more than £500m for the sixth CfD auction round, raising the budget to over £1.5bn This means offshore wind funding has increased from £800m to £1.1bn, the largest budget ever Despite this vast increase, the budget will not be enough to procure the capacity needed to meet UK’s 2030 offshore wind target LONDON (ICIS)–Modelling by ICIS Analytics indicates that the UK government’s latest £530m funding increase to its Contracts for Difference (CfD) scheme is too low to procure the capacity required to meet its 2030 offshore wind target. The UK aims to quadruple offshore wind capacity by 2030, a target the Labour government first announced before being elected. The budget boost was announced on 31 July, ahead of the sixth auction round of the Contracts for Difference (CfD) scheme this summer, and raises the overall budget to over £1.5bn. The pot for offshore wind has now increased from £800m to £1.1bn, the largest ever budget. But to meet the UK target, nearly £3.2bn would be needed – if the auction cleared at a base case scenario strike price of £60/MWh, ICIS analysis shows. Furthermore, there are too few auction entrants to procure the 16.6GW of offshore wind capacity needed in the first place. This is because only 10.6GW in projects have the required development consent to proceed to auction. “Last year’s auction round was a catastrophe, with zero offshore wind secured,” energy secretary Ed Miliband said in a statement, adding that the new budget would support construction work for the sector. The unsuccessful 2023 fifth auction round saw no offshore wind bids mainly due to a low strike price in the wake of increasing supply chain costs. The previous government had set the maximum strike price for offshore wind in the sixth auction at £73/MWh, allocated offshore wind its own funding pot and set a budget of £800m. The new government’s aim to quadruple offshore wind capacity is also an increase on the UK’s previous target. OFFSHORE WIND ANALYSIS To interpret targetted 2030 capacity, ICIS quadrupled its forecast for installed capacity by the end of 2024, resulting in 61.08GW by 2030. Actual intended capacity may vary, and the government did not address enquiries that could help specify the exact date from which it intended to quadruple capacity. ICIS Analytics calculated that, in auction rounds six and seven, offshore wind capacity needs to average 16.60GW per auction to obtain the capacity needed to reach the 2030 target. Calculations show that if the auction cleared at a strike price of £60/MWh, the £1.1bn budget could finance 5.8GW of capacity. Similarly, if the auction cleared at its maximum strike price of £73/MWh, the budget would only be able to fund 4.3GW. Given that only 10.6GW of offshore projects have development consent to proceed to auction, this puts increased pressure to secure further capacity on the seventh auction in 2025. For now, ICIS Analytics forecasts only 39GW of offshore wind capacity will be built by 2030, under a base case scenario. BOOST FOR ONSHORE WIND The overall budget the CfD scheme is divided into three pots (see infographic) depending on the technology it supports. The budget for pot one, for established technologies like onshore wind, was increased from £120m to £185m as a result of the latest £530m injection.     The government has also removed a de-facto ban on onshore wind in England this month. Additional policy tests previously meant that wind power planning applications had to go though additional hurdles compared to many other types of energy development proposals. The government also plans to consult on bringing onshore wind back into the nationally significant infrastructure projects regime, meaning decisions on large onshore wind projects would be made by the Secretary of State instead of local planning authorities. This could further speed up permitting. ICIS analyst Robbie Jackson-Stroud previously stated that onshore wind is cheaper and quicker to build but has a thin pipeline of projects due to previous red tape. “While there is more opportunity for the technology, it may take until the seventh auction round for onshore projects to be ready to bid in the CfD,” Jackson-Stroud said. FLOATING OFFSHORE WIND Pot two, which is for emerging technologies such as floating offshore wind, saw a funding increase from £105m to £270m. This should help the UK move closer to its target to deploy up to 5GW of floating offshore wind capacity by 2030, despite £15m being ringfenced support for tidal stream projects. ICIS previously reported that the increase in maximum strike price to £176/MWh and budget of £105m for the sixth auction could make the round more attractive to developers and could procure more floating offshore wind capacity. In the fifth auction, there were no bids for floating offshore wind amid a low strike price of £116/MWh and a budget of only £37m for the pot.

LONDON (ICIS)–Eurozone inflation in July is expected to rise from 2.5% to 2.6%, above market expectations, with services being the driving component, according to data from European Commission statistics body Eurostat. Looking at the main components, services are expected to see the highest annual rate in July (4.0%, falling from 4.1% in June), followed by food, alcohol and tobacco (2.3%, also falling from 2.4% in June) and non-energy industrial goods (0.8%, compared with 0.7% in June) Energy holds the position of highest growth, growing to 1.3% from 0.2% in June. Despite the higher than expected rate of inflation, the downward overall downward trajectory remains intact, according to analysts at banking group ING, but may not be at a pace to allow for further rate cuts in the immediate future. “Survey data still suggests that the downward trend in inflation is likely to continue. And keep in mind that, at the current level, interest rates still imply restrictive monetary policy,” said ING chief economist for the eurozone Peter Vanden Houte. The debate on whether The European Central Bank should or should not introduce a cut in September will only be finalised once another six weeks of remaining economic data is reviewed. The central bank’s monetary policy committee convenes on 12 September. The eurozone inflation flash estimate is issued at the end of each reference month. The final figures for July are schedules to be released for 20th August 2024.

SINGAPORE (ICIS)–Ethane is gaining favor as the feedstock for steam crackers in China, as its competitive prices make ethane-cracking the most profitable route for ethylene production compared to other options. Join ICIS LPG analysts Lillian Ren and Yan Wang as they discuss how Chinese steam crackers are eyeing ethane as a cracking feedstock. Several steam cracker operators in China plan to revamp and switch to cracking more or only ethane instead of propane. Propane/butane still takes a larger share than ethane in steam cracker feedstock slates. The cost advantage of ethane will narrow with increasing demand and a single global source.