The global chemicals market is set for a modest recovery
Recently, a number of analysts, including S&P Global and the American Chemistry Council (ACC), have made forecasts for the global chemicals market in 2024. These analysts point to a modest recovery in the global chemicals market in 2024. As ACC predicts, the global chemicals market will grow by 2.9% in 2024, compared to only 0.3% in 2023.
However, market participants also said that in 2024, the market will continue to suffer from overcapacity, which will limit the recovery prospects of the global chemical market in 2024.
Macro markets remain worrisome
S&P Global Commodity Insights said that demand for bulk chemicals in the end market was weaker than expected in 2023 due to significant market destocking and weak demand. While producers are observing a stabilization of demand through 2024, forecasts for the pace of market recovery vary. Analysts at S&P Global believe that high inflation, high interest rates and geopolitical tensions also pose challenges and risks to growth in the year ahead.
The divergence between the economic development of the United States and the European Union is coming to an end as the outlook for economic growth in the United States weakens. US GDP growth is expected to slow to 1.4% in 2024 from 2.4% in 2023, while Eurozone GDP growth is expected to be 0.5%, similar to 2023. The recovery in the Chinese market will more offset the decline in the European and American markets. Asian demand is expected to grow by 4.2% in 2024 and lead the global demand growth.
In the energy market, S&P Global said it expects Brent crude oil prices to fall to $81/b by March 2024 from $93/b in October 2023. Of course, this price can fluctuate due to geopolitical turmoil and economic uncertainty. After the first quarter of 2024, Brent crude oil prices will rise. S&P Global forecasts that the average annual price of Brent crude oil will be $85 per barrel in 2024 and fall to $76 per barrel in 2025.
Overcapacity will continue
Regarding the overcapacity problem that the global industry is currently concerned about, Robert Steele, senior director of petrochemical analysis at S&P Global, said that the global petrochemical market will recover by 2026, represented by the global ethylene market, but will continue to maintain overcapacity.
In 2023, plastic demand was lower than expected due to inventory replenishment and weak demand for durable goods, Steele said. In 2023, the global demand growth for polyethylene and polyvinyl chloride will be close to zero, and the global demand for polypropylene will rebound by 3%~4%. "After a weak 2022 and 2023 years, polymer demand growth will return to or slightly higher than GDP growth in 2024," Steele expects. However, demand growth is mainly coming from Asia. Assuming that GDP growth remains stable and some end-users replenish their inventories in a low-price environment, demand is expected to be optimistic. ”
But in terms of crucial margins, Steele said global ethylene margins based on naphtha feedstock will remain challenged in 2024 regardless of demand due to the large number of new capacity coming online. "Unless there is large-scale industry consolidation and capacity rationalization, naphtha-based ethylene will also remain low through 2025," Steele said. ”
S&P Global's base assumption for ethylene production capacity is that global ethylene production capacity should be reduced by 10 million ~ 15 million mt/year in the next two to three years, and the industry's sustainable profit margin can be restored around 2026.
The outlook for Europe and the United States is divided
While macroeconomic forecasts for Europe and the U.S. converge, the latest forecasts for 2024 earnings in Europe and the U.S. are very different.
There are already some signs of improvement in the U.S. market. Martha Moore, chief economist at ACC, said: "We expect a modest rebound across all segments, with total U.S. chemical production increasing by 1.5%. "Among them, the output of basic chemicals is expected to increase by 1.7%, the output of specialty chemicals by 0.7%, the output of agrochemicals by 1%, and the output of consumer chemicals by 1.7%. Moore said this is a return to growth after a 1% decline in 2023.
In 2023, the production of basic chemicals in the United States will fall by 2.5%, as will the output of petrochemicals and organic intermediates, synthetic rubber and man-made fibers, and the output of plastic resins will increase slightly by 0.5%, ACC statistics said. This is a consequence of strong exports. Specialty chemicals production declined by 1.2% in 2023 after double-digit growth in 2022. In terms of profitability, due to the low energy cost advantage of American chemical companies, the profitability of American chemical companies in 2024 will be relatively optimistic.
In Europe, the European Chemical Industry Council (Cefic) forecasts that EU chemical production could increase by 1.0% in 2024. Cefic described this outlook as "flat to modest growth" and would represent a modest recovery in the European chemical industry from a challenging two years. EU chemical production fell by 7.6% in 2023 and 6.3% in 2022. Cefic expects a "gradual normalisation" of the demand structure in 2024.
However, for profitability, Cefic Director General Marco Mencink said that energy costs are still the "Achilles heel" of the European chemical industry, and the overall economic outlook for the EU chemical industry remains uncertain. Other market participants believe that the profitability of European chemical companies in the first half of 2024 is not optimistic.
In addition, the urgency of the energy transition in the chemical industry has not diminished in the slightest, with European and American chemical companies continuing to invest in decarbonization to reduce CO2 emissions and advanced recycling projects to tackle plastic waste. Currently, 76% of companies in the chemical industry's billion-dollar club have committed to achieving carbon neutrality or net-zero emissions by 2050, and 88% plan to reduce emissions in the medium term by 2030.
