LONDON (ICIS)–Fresh upcoming legislation in the EU and UK from 2025 are set to galvanise the biofuels sector by setting minimum targets for sustainable fuels usage in the aviation sector, but hesitance remains among the larger players. New mandates set to galvanise sector growth Larger incumbents still cautious about big bets Pace of demand growth after SAF mandates remains to be seen The EU sustainable aviation fuels (SAF) mandate will set a minimum floor for fuel at EU airports to contain at least 2% from 2025 and gradually tick up each year, to hit 6% by 2030. These targets ratchet up dramatically from that point, with the 2030-35 period likely to be a transformational period for the aviation sector,  as the SAF mandate to increase from 6% to 20% in just five years. By 2050, SAF is expected to become the dominant form of aviation fuel, with the EU mandating that airport fuels be 70% SAF by the midpoint of the century. Over the next 26 years, aviation firms and fuels producers will need to solve many colossal questions, including the precise composition of the fuels and how those raw materials can be sourced and scaled. Although the European Commission’s ambitions for SAF growth over the next half-decade are a far cry from the step changes required between 2030 and 2050, the introduction of those first minimum targets will be transformational. “I think it’s widely seen as a game-changer in the sector,” said ICIS markets editor for biofuels Nazif Nazmul. SAF currently makes up 0.1% of the global aviation fuel mix and approximately 0.5% in the EU, according to Nazmul, so a 2% target for next year means that airport fuel providers will be under pressure to ramp up capacity quickly. SLOWING AMBITIONS Despite this, the last few months have seen a spate of delays and cancellations from some of the largest entrants to the sector, in Europe and elsewhere. BP announced in June that it is dramatically scaling back its bet on SAF, in the wake of taking full ownership of Brazil-based sugarcane and ethanol major Bunge Bioenergia. The company has paused planning of two projects and continues to assess three others, which it attributed to a desire to simplify its new fuels portfolio. Shell also announced a pause to work on its flagship Rotterdam, Netherlands biofuels plant as part of a bid to control costs, but also “to assess the most commercial way forward for the project,” according to Shell downstream renewables and energy solutions director Huibert Vigeveno. The pause will allow Shell to optimize its project development order and reduce the number of engineers on the ground at the site, but projected savings are counterbalanced by a heavy price. Shell estimates that the write-down from the move will cost the company $600 million to $1 billion. STILL EARLY STAGE Shell has not commented on the capacity for the 2025 EU mandate to improve market conditions, but the impact of the new legislation could take time to trickle through the market. Spain’s Cepsa, on the other hand, is proceeding with its €1.2bn, 500,000 tonnes/year biofuels project, with start-up scheduled for 2026. “There is a huge chunk of the aviation market that biofuels was not a part of previously, when biofuels were previously relegated to road transport,” Nazmul said. “But now it has opened up to aviation and I think this is something that definitely got the oil majors interested in the first place. But I think the scale is something that they’re beginning to question. Is it something that they’re able to pull off right now or should they wait for the market to get a little bit more mature?”, he added. A factor in many green chemicals and green fuels markets is the imminent extent of the scale-up dictated by policymakers at a point where many technologies thought to be necessary for decarbonisation are at the pre-commercial or pilot stage. As with chemical recycling, which has seen players try to step up quickly from pilot to small scale to commercial scale plants, biofuels players need to move fast to meet targets. But the economics of the sector remain challenging for now, and future prospects opaque, meaning that slower-moving fuel sector incumbents may hang back and let more specialized firms take the first larger steps. “The pace of market growth following the rollout of the mandates remains to be seen, which is why some larger players are opting to hold back for the time being,” Nazmul said. FEEDSTOCK, TECHNOLOGY QUESTIONS Like the rest of the bio-based materials sectors, the question of what feedstocks and technologies will be viable as the market grows remains unclear, with players betting on different routes. “That’s the question no one knows for sure,” Nazmul said. Currently there are seven different routes to produce SAF, and it’s kind of a gamble.” “Will there be enough feedstock? Will there be enough capacity? Will we be importing for example SAF from the US? Doesn’t that defeat the entire purpose of slashing emissions when you’re shipping these biofuels long distances?”, he added. The wider world is observing the steps taken in Europe and the US to develop a viable commercial market for SAF, but few moves have been made outside those regions so far. The same may be the case for large energy sector incumbents, who have the financial flexibility to wait for the market to mature a little before going all in. 2025 may prove to be the starting gun for the sector to develop in earnest, but the real rewards may be further down the line. “Asian countries are really interested in SAF, we’re seeing some investments in Japan, but countries like India and China are yet to really commit. It’s a matter of time and I’m sure those companies and those countries are assessing the best possible options out there,” Nazmul added. SECTOR BACKGROUND Biofuels are liquid fuels derived from biomass, such as biodegradable agricultural, forestry or fishery products, municipal waste, or biodegradable industrial waste. Biofuels can be categorized into four generations: First-generation: Produced from food crops like corn and sugarcane using conventional technology. These biofuels have moderate costs, as they depend heavily on crop prices. Second-generation: Made from non-food biomass like agricultural residues, wood, and waste. These are more expensive due to the advanced technology required. Third-generation: Derived from algae and other fast-growing biomass, but have high costs that are expected to decrease with technological advances. Fourth-generation: Involve biofuels that capture and store carbon during production, often using genetically modified organisms. These also have high costs but may become more affordable as technology improves. Biofuels are increasingly popular across many industries but especially in the transportation sector. This is due to concerns over the impact and supply of fossil fuels, and the fact that many of these fuels are compatible with existing systems. Supply and demand have been bolstered by legislative mandates and corporate climate commitments aimed at promoting sustainability and the environmental benefits of biofuels. This has led to a significant increase in demand in recent years. While first-generation biofuels once dominated the market, there has been a significant shift towards second-generation biofuels. Despite incentives, the global transition to biofuels faces challenges. High costs and uncertainty about profitability hinder vital investments. Long-term take-up goals have also increased concerns over supply capabilities. Insight by Tom Brown and Zara Najimi Click here to visit the ICIS biofuels topic page

SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson. STILL WAITING FOR the end of the chemicals downturn? If so, I believe you are wasting precious time. Read in detail in today’s blog and see my ten summarised reasons below. Print this off and pin it on your boardroom wall: Most of the G20 countries, which account for more than 70% of global polyethylene demand (chemicals and polymers are equivalent to economic activity) is ageing. Immigration is of course the answer to some extent, but this is politically very difficult in the West. In the regions and countries where populations are youthful, not enough people – because of politics in the West – are likely to be able to move to the rich world for better economic opportunities, and to escape conflicts and the effects of climate change. Climate change will more likely be successfully mitigated in the rich world. But the risk is that the Developing World ex-China does not get the financing and technologies it needs to mitigate the impact of climate change. China is the immediate centre of the crisis for the global chemicals industry because global capacity was added on wrong growth assumptions. China’s chemicals demand growth could turn negative because of an ageing population, the end of the real-estate bubble and geopolitics. Geopolitics mean that we are likely to see a change in chemicals trade flows. A bipolar world – one centred on China and its allies and the other on the US and its allies – is one outcome The oil and gas majors could end up dominating chemicals to compensate for declining oil demand due to electric vehicles and fuel efficiency, as China moves to chemicals self-sufficiency by itself and/or with imports largely from its geopolitical partners in the Middle East We are in the early stages of a new industrial revolution driven by sustainability As was the case with the start of the first industrial revolution, it is impossible to say what will be the winning and losing technologies. For chemical companies without strong feedstock advantages, without the right geopolitical locations- and which have too much exposure to the diminishing China import markets – it is success in sustainability that is the route to new competitive advantage. 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.

LONDON (ICIS)–Here are some of the top stories from ICIS Europe for the week ended 16 August. Europe MA prices remain under upward pressure as new production issue curbs Sept availability European maleic anhydride (MA) spot prices continue to be under upward pressure this week as constraints in northwest Europe seem poised to restrict availability for September, too. Europe fatty alcohol spot prices stabilise after bullish H1 August European mid-cut fatty alcohol spot prices held steady this week after two consecutive weeks of €50/tonne increases. Eurozone chemical production up in June, Q2 GDP rises 0.3% Chemical production firmed in the eurozone for the second consecutive month amid a wider decline in industrial production during the month, with GDP in the region continuing to firm, growing by 0.3% in the second quarter. Germany’s Aug economic outlook down on US economy, Mideast concerns Sentiment for Germany’s economic outlook fell sharply in August on concerns over the US economy and the protracted conflict in the Middle East. MA rebounds in northwest Europe on new outage, price gap with south of region grows European maleic anhydride (MA) spot prices firmed this week on supply constraints in northwest and central Europe that arose in the first half of the week.

SINGAPORE (ICIS)–Here are the top stories from ICIS News Asia and the Middle East for the week ended 16 August 2024. China July industrial output growth slows; H2 outlook dims By Nurluqman Suratman 15-Aug-24 16:49 SINGAPORE (ICIS)–China’s industrial output growth in July slowed to a four-month low of 5.1%, aggravating concerns about continued manufacturing slowdown, with a growing set of data suggesting the world’s second-largest economy is struggling to gain momentum. Asia PBT market faces logistical challenges amid Q3 lull By Corey Chew 15-Aug-24 10:29 SINGAPORE (ICIS)–The Asia polybutylene terephthalate (PBT) market saw the Indian region being affected by logistical challenges to a larger extent compared to northeast Asia. Major S Korea producers withdraw ADD probe petition against China SM By Luffy Wu 14-Aug-24 18:45 SINGAPORE (ICIS)–South Korean producers Hanwha Total Energies and Yeochon NCC are withdrawing their request for an antidumping probe on styrene monomer (SM) imports from China, based on a petition they filed with the Korea Trade Commission on 12 August. Singapore’s 2024 key exports growth forecast trimmed on demand concerns By Nurluqman Suratman 13-Aug-24 15:30 SINGAPORE (ICIS)–Singapore’s non-oil domestic exports (NODX) growth forecast for 2024 has been revised downward to 4-5%, Enterprise Singapore (EnterpriseSG) said on 13 August. China July petrochemical index falls as demand remains sluggish By Yvonne Shi 12-Aug-24 15:55 SINGAPORE (ICIS)–The ICIS China petrochemical index dropped by 3.07% month on month to 1,241.5 in July, with acetone experiencing the largest decline due to weak downstream demand.

TORONTO (ICIS)–US and Canadian chemical distributors and other trade groups are warning about potentially “catastrophic” impacts of a rail disruption that could start in Canada next week. Railroads Canadian Pacific Kansas City (CPKC) and Canadian National (CN) said they may start to lock out workers starting Thursday, 22 August, if no progress is made on reaching new collective agreements. Ahead of the potential lockout, the railroads have already embargoed certain shipments. The US Alliance for Chemical Distribution (ACD) and Canadian group Responsible Distribution Canada (RDC) said the disruption would affect “a myriad of hazardous materials”, in particular chlorine for drinking water. Municipalities do not have weeks of chlorine stocks, meaning that a supply disruption will pose a risk to public health and safety, the groups said. ACD and RDC member companies serve as intermediaries for municipalities, receiving rail shipments of chlorine and other water treatment chemicals and then shipping them to end-users. The chemical distribution trade groups said Canada’s labor minister, Steven MacKinnon, needed to intervene. However, he rejected the call by CN to step in and refer the dispute to the Canada Industrial Relations Board (CIRB) for binding arbitration. Canada’s government believes in the collective bargaining process “and trusts that mutually beneficial agreements are within reach at the bargaining table,” the minister said on Thursday. In a ruling last week, the CIRB held that no rail services, even for chlorine, needed to be maintained during a strike or lockout. Canada’s chemical and other industries had urged the CIRB to order that minimum rail services be maintained during any industrial action to ensure the delivery of chlorine to water-treatment facilities, as well as other essential goods and fuels. For chlorine, a chlor-alkali plant in North Vancouver supplies both Western Canada and the US West with liquid chlorine for use in drinking water. TRADE WITH US AT STAKE John Corey, president of the Freight Management Association of Canada, said a rail disruption would not only shut Canada’s economy down but it would also affect the US, given the high level of integration between the two countries. CN and CPKC are Canada’s only two freight railroads and industry has no alternative to rail to ship product into and out of the country, Corey said in a webcast media briefing. A rail disruption would further hurt Canada’s reputation in the US as a “legitimate trading partner”, he warned. “The Americans are looking up at us and saying, ‘What are you doing to fix this?’,” he added. The labor contracts at both CN and CPKC expired on 31 December 2023 – but the issue has yet to be resolved as Canada seems to be “sleep-walking”, he said. He reminded of the damage caused by last year’s 13-day strike at Canada’s West Coast port strike and the 2022 blockade of the Ambassador Bridge from Windsor in Ontario to Detroit, Michigan – events from which Canada seems to have “learned very little”. If Canada continues to have this kind of disruptions and is unable to deliver product to its largest trading partner by far, the US would have to think of alternatives, he said. The current labor uncertainty has already impacted supply chains, he said. If the rail service shuts down on 22 August, ports will shut down within two days because no product is able to get into and out of ports, he said. For each day that the rail service is down it will take one week to get supply chains back to normal, meaning that a 10-day disruption could impact the supply chain until the end of the year, he noted. Canada’s government needs to take “some action” if the rail service is disrupted  next week. “Back-to-work legislation” was one option, but it was also an admission that the labor negotiation process is flawed, he said. Binding arbitration, which is used to settle labor disputes involving police or firefighters, would be a better option, but the government seems to have ruled that out, he said. CHEMICALS AND RAILThe bulk of Canada’s chemical production is exported to the US and Canadian chemical producers rely on rail to ship more than 70% of their product, with some exclusively using rail. Without a rail service, chemical producers could be forced to shut down plants within a week, trade group Chemistry Industry Association of Canada (CIAC) has said. The Canadian chemical sector moves over 500 railcars/day and it requires over 1,500 road-based tanker trucks to carry the same load, according to the CIAC. However, the trucking industry does not have that kind of capacity. Furthermore, the movement of many chemical products is restricted to rail due to their hazardous nature. According to CIAC data, more than Canadian dollar (C$) 76 million (US$55 million) of industrial chemical products move on Canada’s rail network daily, or C$28 billion each year. Chemicals account for nearly 10% of all Canadian rail traffic. Furthermore, the chemical industry’s customers in the automobile, forest products, minerals and other industries ship most of their product by rail. Elsewhere, about 75% of all fertilizers produced and used in Canada is moved by rail. The following table by the American Association of Railroads (AAR) shows Canadian freight rail traffic, including chemicals, for the week ended 10 August and the first 32 weeks of 2024: In recent earnings calls, chemical company Chemtrade Logistics, midstream energy firms Pembina and Keyera, fertilizer major Nutrien and others have raised the rail disruption as a concern, and railroad CN reduced its 2024 earnings guidance citing the impact of the labor uncertainty. The rail disruption threat comes as Canada’s economy is facing a shallow downturn. (US$1 = C$1.37) With additional reporting by Adam Yanelli Thumbnail photo source: Canadian National

LONDON (ICIS)–Senior editor for recycling, Matt Tudball, discusses the latest developments in the European recycled polyethylene terephthalate (R-PET) market, including: Growing number of enquiries for food-grade pellets in August Actual confirmed deals remain limited Buyers take various approaches to pellet purchasing Wider R-PET market stable due to holidays

SINGAPORE (ICIS)–Malaysia’s economy is expected to maintain a strong growth momentum in the second half of the year, after expanding at a faster annualized rate of 5.9% in Q2, on the back of improving domestic spending and external demand. Q2 marks fastest GDP growth in six quarters Petroleum and chemical products led Q2 manufacturing growth Robust demand for non-electronics goods to boost exports On a quarter-on-quarter seasonally adjusted basis, the economy expanded by 2.9% in April June, accelerating from the 1.5% expansion in Q1 2024, Bank Negara Malaysia (BNM) – the country’s central bank – said on Friday. Q2 growth was primarily driven by stronger domestic demand and further expansion in exports, according to BNM. For the whole of 2024, BNM forecasts the economy to post a 4-5% GDP growth, stronger than the 3.7% growth in 2023. The final year-on-year Q2 GDP print was revised up from the previous estimate of 5.8% and represented a strong acceleration from the 4.2% expansion in the preceding quarter. At 5.9%, the Q2 GDP growth was fastest quarterly growth recorded since Q4 2022, according to the Department of Statistics Malaysia showed. Malaysia is southeast Asia’s fifth-largest economy and a net exporter of polyolefins. It is also one of the largest producers and exporters of oleochemical products worldwide, contributing about 20% to global capacity, according to the Malaysian Petrochemicals Association (MPA). The country’s central bank expects household spending to remain strong in H2, driven by employment and wage growth and policy support. Investments will be fueled by ongoing projects, while exports will benefit from the global technology upcycle and robust demand for non-electronics goods, it said. However, downside risks include weaker external demand, geopolitical tensions, and lower commodity production, BNM said. CHEMICALS LEAD Q2 MANUFACTURING GROWTH The manufacturing sector registered in April-June 2024 grew by 4.7% year on year, up from 1.9% in the previous quarter, aided by a broad-based improvement across all sub-sectors. The petroleum, chemical, rubber, and plastic products segment led the expansion, with Q2 annualized growth accelerating to 4.1% from 1.1% in Q1. Q2 final consumption expenditure rose by 5.6% year on year, up from 5.1% in Q1, as private spending increased by 6.0%, up from 4.7% in Q1. Exports for the period rose by 8.4%, outpacing Q1’s 5.2% growth, while imports posted a faster growth of 8.7% compared with 8.0% in Q1. Focus article by Nurluqman Suratman

SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson. The world as it stands today tells us that US doing extremely well in the key China HDPE import market. Using trade data and ICIS price benchmarks: In 2023 over 2022, US sales turnover in soared by $500m as its exports in tonnes to China also increased. In January-June 2024 over the same period last year, its turnover was up by another $106m. Meanwhile in 2023 over 2022 as their shipments to China dipped – and because of lower pricing – Iran’s turnover was down by $468m, Saudi Arabia by $449m, the UAE by $412m and South Korea by $176m. But the January-June 2024 data show the UAE and South Korea clawing back some ground. “In H1 2024, US [total] PE exports were 46.5% of total sales and operating rates above 90% – a far cry from 21% in 2017 when operating rates were also much lower in the mid-80% range,” wrote my colleague Joe Chang in a15 August ICIS news article. This suggests that the US, because of its feedstock advantages, gained sales turnover in markets other than just China in H1 2024 – and in the other grades of PE. The comprehensive nature of ICIS price benchmark and trade data means that it is possible to produce charts like the ones in today’s post for other countries and regions such as Europe, Latin America, Africa, Turkey and India. But this familiar world of trade flows driven by feedstock costs is rapidly changing. If the US-China geopolitical split continues, this raises the question of where China will in future source most of its chemicals import volumes. Demographics will also shape demand, and so trade flows, in China and elsewhere. A later blog post will discuss demographic analysis which suggests that China’s population in 2020 could have been 130-250m lower than the 1.42bn official number.  This would obviously have major implications for historic and future chemicals demand in China. But perhaps China’s cap on refinery capacity from 2028 onwards, due to the electrification of vehicles, will limit its capacity growth, thereby creating a bigger opportunity for exporters. Geopolitics, demographics, debts and sustainability will, I believe, be the new defining shapers of chemicals and polymers trade flows. The world as it stands today, represented by most of the analysis in today’s post, is coming to an end. 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.

TORONTO (ICIS)–Chemtrade Logistics hopes that a freight rail disruption in Canada, should it occur, will be short, the top executives of the Toronto-based industrial chemicals producer said in a webcast earnings call on Thursday. Meanwhile, the country’s federal labor minister rejected a call for binding arbitration to settle the rail labor dispute that has been looming over Canada’s chemicals and other industries for months now. Canada’s two major railroads – Canadian Pacific Kansas City (CPKC) and Canadian National (CN) – have said that they may start to lock out workers on 22 August if no progress is made on reaching new collective agreements. Ahead of a potential lockout, the railroads already started to embargo certain shipments. While hoping that any rail disruption will be short, Chemtrade CEO Scott Rook and CFO Rohit Bhardwaj would not speculate how long a disruption may last or how long the company will be able to operate without rail services. CHLORINE Chemtrade is beginning to see impacts “even as of today” as poison inhalation hazards (PIH) materials are no longer moving on rail, Rook noted. The PIH issue, in particular chlorine for use in drinking water treatment, was being discussed at the highest level of governments this week in both Canada and the US, Rook said, adding that Chemtrade thinks that authorities will consider chlorine for drinking water as “essential”. Chemtrade’s North Vancouver chloralkali plant plays an important role in ensuring supplies of liquid chlorine for use in safe drinking water in both western Canada and the US West, Rook stressed. The plant produces more than 40% of all available liquid chlorine in Canada, and regionally it produces more than 70% of the liquid chlorine used to treat drinking water in Canada’s British Columbia and Alberta provinces, he said. A declaration of chlorine as essential, however, would contradict last week’s ruling by  the Canada Industrial Relations Board (CIRB) that no essential freight rail activities needed to be maintained in case of a rail strike or lockout. Canada’s chemical and other industries had urged the tribunal to order that minimum rail services be maintained during industrial action to ensure the continued rail delivery of essential goods such as fuels, food or chlorine for water-treatment facilities. During the CIRB process the right to a legal strike or lockout was suspended. CUSTOMERS STOCKED UP AHEAD OF DISRUPTION The market has been expecting a rail disruption in Canada for several months and customers therefore raised their inventories in anticipation of a disruption, the executives said. The volumes customers brought forward contributed “a meaningful number” to Chemtrade’s stronger than expected Q2 results, CFO Bhardwaj said. The company raised its guidance for 2024 full-year adjusted earnings before interest, tax, depreciation and amortization (EBITDA) to Canadian dollar (C$) 430-460 million (US$314-336 million), from previous guidance of C$395-435 million. The new guidance assumes no rail disruption at its upper point but some disruption at the mid- and lower points, Bhardwaj said. Even if there is no strike or lockout, the looming industrial action is causing disruptions in supply chains as companies need to prepare, he added. Canadian chemical producers rely on rail to ship more than 70% of their product, with some exclusively using rail, while in the fertilizer industry about 75% of all fertilizers produced and used in Canada is moved by rail. The following table by the American Association of Railroads (AAR) shows Canadian freight rail traffic, including chemicals, for the week ended 10 August and the first 32 weeks of 2024: In recent earnings calls, midstream energy firms Pembina and Keyera, as well as fertilizer major Nutrien and others raised the looming rail disruption as a concern, and railroad CN reduced its 2024 earnings guidance, citing the impact of the labor uncertainty. MINISTER DECLINES TO INTERVENE Meanwhile, Canada’s Federal Labor Minister Steven MacKinnon said on Thursday that he will not accede to a request by CN to intervene and refer the dispute to the CIRB for binding arbitration. “The Government firmly believes in the collective bargaining process and trusts that mutually beneficial agreements are within reach at the bargaining table,” the minister said. (US$1 = C$1.37) With additional reporting by Adam Yanelli Thumbnail photo source: Chemtrade Logistics