Chemical Industry Litmus Test: Insight From Our "in the field" Consultancy Team

Consultants and business managers from our chemicals team have attended the European Petrochemical Association (EPCA) Annual Meeting since the last millennium. 

First, as representatives of one of the world's first petrochemicals-focused consultancies, Tecnon OrbiChem. Now, we are monitoring markets for biobased, waste, and forest products, too. The team works under our US-based parent company, ResourceWise.

Anyway, the 58th such EPCA event, held in Berlin in early October, was no exception. Our expert team welcomed friends—old and new—and other market participants into a dedicated suite downstream from the event's InterContinental Berlin Hotel hub.

These crucial face-to-face interactions with professionals across chemical value chains are a litmus test of sentiment, allowing assessment of moods in boardrooms, plants, and factory floors worldwide.

Here, experts who benchmark prices and analyze chemical markets from acetyls to xylenes (and scores between) share insight. What, we asked, was the general mood at this year's event? And what are market participants making of the future?

EPCA Déjà Vu? A Groundhog Event...

Jennifer Hawkins, Business Manager ResourceWise Chemicals, notes that EPCA delegates shrugged at the demand slump faced by markets two years ago. "They saw it as a medium-term phenomenon, from which recovery would occur in the second half of 2023." Read our earlier EPCA roundup report, Insights from EPCA: Angst in Berlin. 

"The same was said in the following year—Key takeaways From a Premier Petrochemicals Event: EPCA Vienna 2023—but consumer confidence has not improved as hoped in the second half of 2024.

"At this year’s EPCA, the 2025 outlook has been a little more cautious; markets will remain flat for the entire year with budgets downgraded to reflect these expectations.  For once, there was no optimism for the second half of next year, but on the upside, there was little pessimism either. 

Q4 2024: Written-off Already?

"The fourth quarter of this year has already been written off. No one is expecting any change. Epoxy resins buyers report that destocking activities had already started in September, and producers say that supply will remain ample until at least the end of 2024.

"The epoxy resins industry remains in a state of uncertainty. Market participants are waiting for two anti-dumping investigations—one in the US and another in Europe to be concluded. 

"The preliminary ruling in the US anti-dumping investigation could bring the first significant change when the decision is published on 6 November. The European Commission is expected to make its first determination around February next year. 2025 contracts in Europe have been delayed until Q1 next year when markets may be a little more clear," Hawkins adds.

Download Hawkins' whitepaper Epoxy Resins: Anti-dumping in the US and Europe?

Base Chemicals Insight 

Ben Edmunds, Consultant ResourceWise Chemicals, monitors prices and market trends for key intermediate chemicals orthoxylene and phthalic anhydride (PA).

A vital base material, PA is mainly used to make plasticizers (among other key products). It is among the most used plastics additives, and OX is its main raw material. 

"There's hope that 2025 will mark the start of recovery—even if only clawing back to 2023 demand levels following a couple of difficult years. Similar hopes existed for 2024 this time last year... So it is with a cautious and pragmatic approach to budgeting, planning, and forecasting that many navigate the final quarter," Edmunds says. 

"The plan is to safeguard themselves and emerge from a worst-case scenario if needs be, as no one expects 2025 to be even weaker than 2024."

2024: A Snapshot So Far

On average, demand levels throughout the chain declined between 5 and 10 percent compared to 2023 levels. Some declines were said to be even lower, with near-stable year-on-year change. Others, meanwhile, reported larger declines—none of these cases were representative of the market as a whole. There was already a low bar, as 2023 was a generally disappointing year.

By and large, these weak demand trends were driven by strong economic headwinds and the associated impact on downstream and end-use market activity. Construction, infrastructure, and home improvement sectors, alongside the automotive industry, remain primary influencers, explains Edmunds. 

"Unsurprisingly, market sentiment in the European orthoxylene-phthalic anhydride value chain remained filled with doom and gloom. In summary, 2024 has been disappointing as a whole," adds Edmunds.

Pointing to the Positives

Improved production costs and reduced import availability stand out to Edmunds. Additionally, he says, "the strong decline in European energy costs from late October 2023 to late February 2024".

"While this was followed by a gradual volatile uptrend thereafter, they remained comfortably below average 2023 levels. That said, they remain elevated compared to historical levels, compounding an already complex situation.

"The Red Sea crisis and Suez Canal diversions underscored higher shipping costs and longer lead times, which reduced import availability. And when import prices lose competitiveness, domestic demand increases..."

General tightness in freight markets triggered additional vessel and container purchases by shipping firms. With reports of the Red Sea crisis winding down and carriers preparing to resume navigation of this key inter-regional route, ocean freight rates declined significantly recently. As with energy, they are still above historical levels.

"Even if freight rates and trade routes improve, we are moving into the off-season, and there will be little need for additional spot material in the short term, warns Edmunds.

"That trend characterized the peak season, and there is little fear of import pressure before a 2025 demand recovery.

"Despite generally low operating rates, producers running at partial capacities, and or production hiccups throughout the year, markets have been well-supplied or long simply due to the weak demand environment. Tightness appeared only in the spot phthalic anhydride flake market, though market players remained indifferent amid low-to-zero demand for spot material during 2024 in general," Edmunds adds. 

Financial Policy Levers

All that aside, there are some signs of positivity for 2025. Most importantly, the European Central Bank's recent and forthcoming interest rate policies as inflation drops. 

Some economic analysts see interest rates at neutral levels (2-2.5%) by mid-2025, an acceleration of what was seen as an end-of-next-year goal. With many downstream products destined for the construction, infrastructure, home improvement, and automotive industries, interest rate cuts could form a foundation for 2025 demand recovery, says Edmunds.

"Market participants remain cautious. While the economic environment may improve, consumers' confidence will take longer to rebuild, they think. If there is a demand recovery, it will likely be reserved for H2 2025. Even that isn't a scenario market participants are banking on," Edmunds explains. 

Oil Hopes as OPEC+ Promise More

In addition, despite initial reports in mid-2024 suggesting that OPEC+ would extend production cuts until the end of 2025, there were reports in late Q3 2024 that OPEC+ now plans to increase output in 2025 (for the first time since 2022), which could see crude oil prices decline next year. In addition, despite initial reports in mid-2024 suggesting that OPEC+ would extend production cuts until the end of 2025, there were reports in late Q3 2024 that OPEC+ now plans to increase output in 2025 (for the first time since 2022), which could see crude oil prices decline next year. With OX and PA prices closely tied to upstream aromatics and crude oil prices, prices throughout the value chain could also decline, potentially stimulating end-use industries with lower costs.

In either case, downstream markets remain cautious, with a wait-and-see attitude. The biggest question on everyone's mind remains: If, when, and to what extent will demand recovery be observed?

EPCA24: A Tale of Solemnity

For William Bann, Lead Business Manager ResourceWise Chemicals, solemnity was pervasive at this year's EPCA Annual Meeting. "Many market sectors [continue to] struggle against the complexities created by a combination of weak demand, adequate global supply, and ongoing geo-political uncertainties.

"Planning for 2025 is well underway, and many delegates speaking on the sidelines of the EPCA conference said the lack of clarity is making that already difficult job more onerous.

"Many market participants expect relative stability in terms of demand in 2025 versus 2024, although most stopped short of predicting anything other than modest growth depending on the region and market sector.

"Stubbornly weak demand has been the primary source of concern across most petrochemical industry sectors, according to EPCA delegates. The recent interest rate decrease in the US and industrial support incentives announced by the Chinese government were seen as positive developments but unlikely to change market trajectories in the short term, delegates said.

Polyamide Market A Challenge

"In the polyamide sector, Europe will remain the most challenging market in 2025, with the need for restructuring in both the PA 6 and PA 66 sectors seen as a thorny issue. Polymer prices in Europe are expected to remain under downward pressure. This was identified as a worrying trend by market participants, particularly with an increase in competitive offers in recent weeks.

One producer source told ResourceWise: “You cannot create demand by lowering prices. “Consumers will not buy more material if they do not need it.” 

The US saw a more balanced market outlook over the next 12 months. In China, the polyamide market is now critically oversupplied, but demand is expected to increase slowly. Chinese producers will increasingly look to export larger volumes of polymer to balance the domestic market, but weak demand in overseas markets could nullify export opportunities.

In the acetyls sector, demand is expected to remain soft in Q4 2024 in all regions, particularly for downstream sectors related to the construction industry (paints, coasting, adhesives). According to market participants, depressed market prices in China—a result of weak demand and increasing supply—are rippling through consumer sentiment in other regions.

European acetyl markets have reached a low ebb, and there was talk that consumers were already starting to prepare for the usual end-of-year holiday season slowdowns.

In the US, major producers operated normally following a long period of supply disruptions earlier in the year, and markets were considered balanced. US market participants are more optimistic about 2025 compared to their European counterparts; however, growth likely will not exceed GDP forecasts.

Acrylic Acid and Acrylates Markets Inconclusive 

Within the acrylic monomer sector, market participants remain "inconclusive".

That is the view of Jaroslaw Cienkosz, Consultant ResourceWise Chemicals, who focuses on acrylic acid and acrylates markets.

"Participants continue to probe opportunities and assess risks, surrounded by falling prices of main acrylic acid esters. There was a consensus about the buyer’s market status quo, and purchasers have yet to decide how to shape their basket for the next year.

"Just before EPCA, chemicals giant BASF held its Capital Markets Day without explicit reference to its significant global and European acrylic monomer capacity... It was as if 2025 were to be another year of power demonstration to win in the market by leveraging the producer’s top position and vertical integration and, therefore, defeating competitors.

"Simultaneously, the key for acrylics downstream segment coatings business was listed among the standalone businesses well-positioned to command a premium value but subject to an exploration of overall strategic options for value creation, including preparation of a divestment process for decorative paints and investments in portfolio options where this adds value.

"For now, the only confirmed divestment is a planned sale of the coatings business in Brazil, deintegrating it from acrylates regionally. The challenges resulting from the sizeable European capacities of both BASF and Arkema remain.

"Overall, this year’s EPCA event was well attended by players from outside Europe who wanted to understand the business potential in the region amid persistently weak demand on other continents, especially in China and the rest of Asia," says Cienkosz.

Chinese Producers Penetrate European Markets

"Large Chinese acrylic monomer producers have been penetrating the European market to enter into supply agreements with regional buyers. They anticipate far too low capacity utilization at their plants next year, so every export opportunity will be critical to sustaining their business.

"Still, European buyers are not expected to overexpose themselves to risks associated with distant supply as they cannot control freight rates. US players came over to meet their multinational downstream customers in the coatings and adhesive sectors, headquartered in Europe but with a footprint in North America, to learn about acrylic monomer volume prospects on the other side of the Atlantic.

"Their findings were not optimistic when it comes to growth expectations for 2025. In addition, final product cost pressure on monomer raw materials was a theme among EPCA attendees as purchasers want to drive organic sales by offering more affordable prices to end consumers.

"This is most pronounced in the methyl methacrylate (MMA) value chain since low global output and the resulting shortages, together with high quotations for MMA, began in the second quarter. The imminent start-up of Roehm’s new plant in Texas will not resolve all issues in the sector," adds Cienkosz.

PET Challenges Expected

For Javier Rivera, Business Manager ResourceWise Chemicals, EPCA served to confirm the many challenges currently facing the polyester chain.

“Although 2024 has been much better than initially expected for PET producers, the sector’s peak season finalized with disappointing sales and prices (margins) compared to initial expectations in June. Challenging and uncertain markets are again expected for the whole PET chain, including the raw materials—PTA, MEG, and PIA—in Europe moving forward.

“Both upstream and downstream of the PET sector, geopolitical instability is of concern. That will continue to have a significant impact on logistics, freight costs, exchange rates, and prices for raw materials. It will add volatility and create additional uncertainty for products in the polyester chain,” Rivera adds.

Rivera sees companies focusing more on cash preservation, cost optimization, and on fundamentally rethinking their operating models. Supply chain configuration, operating costs, maintenance capital, and procurement/commercial excellence are all part of that mix.

Meanwhile, Rivera says, "green and circular initiatives persist with recycling legislation, the development of bio-alternatives and technologies, as well as decarbonization strategies."

"How this impacts European and non-European producers and products is key to ascertaining what the new model will be in the medium term," he adds.

"Somewhat Sombre" Premier Petrochem Event 

This year's EPCA was George West's first since ResourceWise acquired his US-based glycols, methanol, and solvents-focused enterprise Chemical Intelligence. 

"The mood was somewhat somber," says West, now a director within the ResourvceWise Chemicals division. "There is a lot of economic uncertainty at the moment, and that normally leads to being conservative. US elections, Ukraine and Russia, oil production ramping up and China stimulus measures not as robust as expected...

"That said, margins among many producers in the Americas remain high (methanol), and lower costs also enhance margins for ethylene-related derivatives," West adds.

West, who traveled to EPCA from Texas, sees Europe as a completely different story to his US base."In most instances, Europe continues to shift into the role of a larger net importer of many commodity chemicals," he mused.

A Sum Up from the Sales Suite...

Matteo Baldi, global sales manager ResourceWise Chemicals, sums up. "In Europe the mood is very slow with most looking to 2025 for improvement.

"Personal care and cosmetics sectors continue to perform well as people do spend money on their well-being. But business segments connected with automotive, construction, and plastics have slowed."

The raise in interest rates some months back caused a general slowdown in construction and real estate market, as well as new car sales. When the purchase cost is high, buyers wait to make the purchase.

"The lowering of interest rates predicted for next year, alongside cheaper oil, could herald a slow recovery, but it certainly will not be significant in H1. The US has fared comparatively better than Europe in recent times, but now we must wait to see what the new year brings."

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