What might the second half hold for Europe's chemical industry?

View Full Transcript

Yazmine Khan:

With everything that's gone on through the first six months of the year, it's likely that our estimates in terms of demand and general fundamentals will all be revised down.

Daniel Pelosi:

Hello, and welcome to the Chemical Week Podcast by S&P Global Commodity Insights. I'm Daniel Pelosi, the Senior Price Reporter for European Benzene and Styrene at S&P Global Commodity Insights, and today we're looking to reflect back on some of the dynamics across the first half of the year in the European petrochemical industry in a period which has seen wide trade uncertainty, a volatile geopolitical backdrop, and ongoing concerns surrounding structural demand and long-term industry viability in an oversupplied environment for most markets.

It's quite well-timed to reflect back on the first quarter of the year. Last week, a variety of industry players from across the olefins, intermediates, and aromatics markets attended the second European petrochemical luncheon of 2025 in Munich, Germany to reflect on conditions, discuss outlook for the rest of the year, and begin planning for their considerations and stocking for the rest of the year. And myself and some of my colleagues from the analytics and pricing teams were present at the conference, so we'll use this as a kind of focus to discuss the key trends and outlooks for the second half of 25. So to do so, I'm joined by my two colleagues from the analytics team here at S&P Global Commodity Insights, Andy Orszynski's, the Director of Ethylene and Derivatives, and Yazmine Khan, the Director for Aromatics, it's great to have you guys here.

So we'll start with just a broad kind of discussion on the conference as a whole before getting into some of the nuances of the discussions that we had throughout the week. And probably worth noting as well that it's been about a week since the conference as well, we've had a wide variety of developments in the market, even just in the seven days since the conference concluded. So yeah, we'll swing this round the room, but starting with Yazmine, following the conference in Antwerp in the first EPL of the year, which was dominated by broad uncertainty as a result of tariffs and geopolitical tensions, for Yazmine, on the aromatics side of the industry, what were the key talking points from the Munich event and did you see much of an improvement or more optimism in industry sentiment compared to the Q1 event?

Yazmine Khan:

I'd love to say I did, Daniel, but it seems the mood is very much the same as Antwerp, a lot of uncertainty surrounding tariffs, geopolitical tensions still, and then I think the other thing is that demand continues to struggle and people really see no light and no clarity as to how demand improves over the coming year. People are really sort of struggling to see any sort of good news on the horizon, demand remains depressed, and operating rates across most aromatics producers or benzene derivative producers remain relatively low. Since the conference, there's also been some announcements about some further closures, which we can go into a little bit later. But for EPL itself, still a very sort of downbeat mood with no clarity over the coming months for producers and consumers alike.

Daniel Pelosi:

Yeah, agreed. And from the aromatic side, specifically in my conversations on the benzene and styrene side, quite a lot of just realignment of attitudes to markets for the rest of the year, given the consistency and sentiment and underlying fundamentals across the industry. I had a comment from one producer of styrene, who when asked about current outages in the market, his attitude was essentially, "Well, who cares who's on or offline?" The underlying demand is so weak and has been for the bulk of the year that it's difficult to reckon that with any substantial change in conditions. To swing to the olefins and polymer side, Andy, what were your key takeaways from the Munich event and did you sense any change from the first quarter?

Andy Orszynski:

Again, not hugely. I think all of the topics we've mentioned so far, so obviously conflicts and escalation in the Middle East actually started breaking out whilst we were there, tariffs, still a hangover from that and some uncertainty, and obviously the recent announcement by [inaudible 00:04:06], which I'm sure we'll get onto in more detail shortly, all of these things that were obviously topics, but I think the one thing underpinning it is still European competitiveness. So if we're talking tariffs, people are immediately concerned about the impact on trade flows and imports and how competitive or more competitive they might come compared to European production. Obviously the rationalization piece is big when it comes to European competitiveness and oil price impact as well.

People are looking at trying to see what's going to be happening with oil, and I know we as S&P Commodity insights have a relatively bearish outlook on oil, or at least we did until things escalated between Israel and Iran last week. So people again are asking that question to try and find out where Europe's going to be sitting on the cost curve in six months time. So I think for the audience at EPL, these are people running the P&L, these are people very much keeping the business running here today. So that near term outlook and how competitive and how much volume they're going to be selling and how much margin is going to be made this year is underpinning every conversation that we have.

Daniel Pelosi:

And I think important to stress that those underlying conditions really do continue to be the key trends in the market despite the broader volatility regarding geopolitics or underlying tariff discussions to stick with olefins and Polymers for now, you mentioned, Andy, the discussions right before the conference surrounding LyondellBasell's pre-conference announcement of the divestiture of four of their strategic review sites to German private equity firm, Aequita on the kind of ethylene and a broader olefins side of the industry. What was the conference's reaction to the LYB announcement and would you say divestiture is seen as a viable option for combating the continent's structural issues? Or is capacity closure still seen as the strongest route out of the structural oversupply that really dominates some ways on European margins?

Andy Orszynski:

Well the Lyondell one is really interesting. Obviously the industry had been anticipating the outcome of this review for quite some time, and I think perhaps for a number of people, the assumption that at least a couple of the sites and possibly one if not two of the crackers at [inaudible 00:06:20] would be closing as a result of this review. So I think perhaps a surprise to some that the divestment route is where we are and that these two crackers, at least in the near term, won't be helping the oversupply situation and they will be staying online. When it comes to the structure of the deal itself, private equity, this is the first time private equity has got into steam cracking itself. We've had plenty of PE in various parts of the chemical value chain with I think mixed outcomes over the years. So the first time private equity has bought steam crackers.

I guess there's two sides to this. There's the cynics in the room and there were the optimists. And I think the optimists want to say, okay, maybe private equity sees something that the industry doesn't. Maybe they look at the fixed cost position and the ongoing CapEx in this industry and think something can be done, some costs taken out and competitiveness improved. Maybe they're betting on everyone else over rationalizing, maybe they're betting on some stronger political support for Europe that's going to help the competitiveness, or maybe they're betting on lower oil and higher gas prices over the next few years. So I think that there's plenty of people that say, look, this deal could very much be in good faith. Then you've got the cynics in the room that they see this as a way of Lyondell getting rid of some liabilities.

So if the plan is closure, then perhaps there's a view that the liabilities on those sites for Lyondell are greater than the cash contribution they've given as part of the deal, and that perhaps private equity can find a way of exiting these sites for less money than that. And unfortunately for many people, that's the deal equation that they see, which is unfortunately perhaps seeing that private equity is a route to exit rather than a route that sees future for these assets.

Daniel Pelosi:

Thanks very much, Andy, and certainly still lots of questions to be answered regarding the broader supply picture and the need for potentially further action here. Yazmine, on the aromatic side of the industry, where there any new developments or previous developments on the potential rationalization or unit future side discussed and is divestment seen as a possibility for underperforming units on the aromatics and phenolic side of the value chains?

Yazmine Khan:

So EPL, the discussion was still very much around, like Andy said, sort of survival of the industry, high energy costs, the high cost basis generally in Europe. And though it wasn't discussed in Europe, the question was put forward as can Europe survive as it is or do we need some rationalization in the industry? Particularly when talking about the phenolics with operating rates being in the sort of mid to low 60 odd percent across Western Europe at the moment, having returned from EPL this past week over just over the last couple of days, they have been some quite important announcements around this chain. First of all, we have Westlake announcing that their BPA and epoxy resin asset in Pernis in the Netherlands will be permanently shut down. And then further to that, we also had an announcement from INEOS Phenol that they will be permanently shutting their Gladbeck asset at likely around the 2027 timeframe, at which point INEOS will then look to restart their Antwerp asset.

The Antwerp asset has capacity of 680,000 metric tons, but it's two lines. So Antwerp is two lines, one of 240 KT and one of 440 KT. It's also the newer assets, so that allows them some flexibility between lines and also a newer plant. So we have INEOS one of their assets in Europe, and we also have BPA rationalization, which will remove between 60 to 80,000 metric tons of phenol demand from the European market that doesn't come back. So we are seeing some rationalization. However, I think with demand continuing to fall away in terms of BPA, polycarbonate, the nylon chain continues to perform quite poorly as well. I think there is still a question mark about some further rationalization in Europe. Prior to EPL was the announcement from PKN Orlen in Poland that they were to close their phenol plant there as well. But it's only a small asset now 55, 60 KT.

So without going it's a small amount shifted from the overall European market, but that is still not enough. I think there is potentially some room for some further rationalization in Europe if we don't see a pick-up in demand. But I think the final thing that I would add is even though INEOS have announced the permanent closure of Gladbeck, they will be restarting the Antwerp unit once that closure happens. So the net impact of that closure in Europe in terms of supply is very, very minimal. I think the actual bigger picture and the bigger story here is that they have chosen to permanently shut an asset in Europe with INEOS citing legislation, high energy costs, and Europe's general uncompetitiveness is one of the main reasons for that.

Daniel Pelosi:

Indeed, a lot of different moving parts here, and I think in addition to this, there really continues to be a great deal of uncertainty and volatility provoked by the international trade environment at the moment with regards to still potential tariff initiations from Washington and shifts in global trade flows as a result of a more isolationist policy by a variety of players across the global sphere. I wanted to touch on this and the view from the conference. I think on my side on the benzene and styrene markets, we do see this continues to weigh quite heavily on potential arbitrage. I think outside of structural flows, it's very difficult for players at the moment to take advantage of potential arbitrage in the market. I had a comment from one source that to ship benzene to Europe at the moment is on a spot basis resulting in consistent 10 to $15 losses. So the arbitrage is essentially impossible. But on your respective value chains, how were stakeholders approaching the current dynamics surrounding tariffs in their discussions at EPL? Have they adjusted their approach to operations and planning in this more volatile international trade environment?

Yazmine Khan:

So in terms of tariffs and the volatility there in Europe, what we don't see is we don't see too much trade. We don't see too much movement of phenolic from Europe into the US. What we do see is some phenol moving from the US into Europe, and what we're expecting is those flows to probably slow down a little bit given the US has higher benzene costs and higher RGP costs this year as well. But overall, generally given that European demand is so weak, we are not seeing a huge impact in terms of phenol and derivatives. Where we do see an issue is in terms of those protectionist measures that you mentioned, Europe seems to be very much going down a line of anti-dumping duties. There's a lot of rumblings around anti-dumping duty investigations or producers in Europe looking for anti-dumping duty investigations over the coming year, to six months to a year.

So I think that's the bigger concern for Europe in this chain, particularly in the nylons, we are hearing rumblings of producers pushing for anti-dumping duty on polyamide or nylon. An anti-dumping investigation is currently ongoing on adipic acid from what we understand. So all of this is a much bigger focus for the European producers of phenol derivatives rather than the tariffs themselves at the moment. The one caveat that I would add to that is if the US does have tariffs on Asian materials and Asian phenol derivatives, what we are likely to see is Asian producers, the South Koreans, the Taiwanese, and potentially even the Chinese looking for another outlet for their material. So what we could see is that volumes that did flow from Asia into the US could then start being rerouted into Europe, which would be a disaster for the European markets given the demand remains so weak.

Daniel Pelosi:

Thanks very much Yazmine. Yeah, key insights there in the site of more busy, more busy trade flows between Asia and Europe.

Andy Orszynski:

So when it comes to tariffs on the olefin side, there's not a huge amount of olefin trade globally. There's a little bit of structural imports coming into Europe, some of which does come from the US, but generally monomer is less than 3% of global production actually finds its way traveling into regionally. So not a huge impact on olefins. I think on the ethane side, it's obviously made the trading environment much trickier. I think several traders, very unhappy with the current situation and volatility, the lack of predictability that's been going on. And I think we see volumes from the US to China definitely down and probably unlikely to pick up significantly now until things are resolved and a little bit of certainty is given. So I think a few people burnt and cautious around that. And I think overall it does just give a little question around the US as a trading partner.

I think there's a few people that were basically just saying, look, maybe it's more competitive, but at the moment there's just too much risk involved of, and escalation between parties and trade deals and things having their cost positions change whilst they're on the water. So I think a little bit of cautiousness around some of those trade flows and the business that's being done with the US at the moment.

Daniel Pelosi:

Agreed, and I think we certainly see this materialize in the day-to-day market conditions, increasing discussions on the benzene side of things regarding or rather the styrene side of things, regarding the sourcing of Chinese material. I think with, it's still a very volatile situation in the Red Sea, but potentially seeing slightly more import offers in the market on some downstream products like polypropylene. So seeing a slight adjustment here in what is a very, very volatile environment. Turning to demand more so as well. I think on my side at least one of the key trends remains the difficult domestic construction and automotive conditions in weighing on any wholesale improvement for appetite for chemicals generally. We'll start with you, Yazmine, on this side. What was the view on downstream demand and derivative conditions from aromatics players during the conference? Is a kind of unlikely upswing in chemical pool from automotive or construction industries expected? And what was the view on what is required to restore appetite from material across the aromatics value chains?

Yazmine Khan:

So reverting back to the phenol and acetone side of things, from my perspective, there wasn't really any hope that demand was really going to improve in Europe. People are still very much looking at a pretty slow remainder of 2025 and potentially going into 2026 as well. I think the issue that Europe has as well is not only is demand weak, but because of high cost production costs in Europe, Europe is continuing to see imports coming in throughout the chain. So in markets that Europe had traditionally been a net [inaudible 00:17:41] because of the over capacity globally, because of the fact that China has become self-sufficient on some of these chemicals, other participants in Asia have to look for outlets for their material because China is no longer a home. And unfortunately for Europe, because Europe is such a high cost region, Europe is going to be that outlet.

So we've got weak demand as the underlying fundamentals. But on top of that, Europe is getting more and more import in of some of the other derivatives. So if we look something like again, phenol, if we are getting BPA imports coming into Europe, epoxy resin imports coming into Europe as well, despite the anti-dumping duties, adipic acid imports coming into Europe, these are products that Europe used to be a traditional end, used to be a traditional net exporter of and is now becoming a net importer of. So I think that's the other path to the improvement picture. One, there is the fundamentals about the demand, but the other side is that Europe continues to attract huge volumes that imports from Asia, which is then displacing domestic demand for those feedstocks.

Daniel Pelosi:

Indeed, and to swing around to Andy, I think there's particular relevance here for you on the automotive side of this discussion. You gave a talk during the conference with our colleague in the S&P Global Mobility team on automotive industry dynamics and their ramifications for the chemicals industry. Could you give a quick summary on the key points of your side of the presentation and did you see those insights reinforced by the sentiment and discussions with the conference attendees?

Andy Orszynski:

Yeah, starting with the macro on automotive. Automotive is a debt-driven industry. Most cars are purchased on some form of finance. So given the interest rates as they are and the overall consumer sentiment, which things like tariffs and conflicts in the Middle East don't help with, automotive is not looking great at the moment. Longer term it's always there though, right? It is still a growth sector globally and cars are an essential part of everyday life and have a limited lifespan, so do get replaced. So even though we talk down a lot about the automotive industry in Europe and it is on decline, it is not going to decline down to zero. So we are away from our peak of around 2017 of producing in excess of 20 million cars in Europe and we're down about 20% on that. But that is expected to come back and grow, albeit perhaps not to those levels.

I think electrification is a key theme that is on people's mind and I think the key message on electrification is we need to be careful about the broad sweeping statements we make around it and realize that the devil is in the detail. So it's very easy. People say, oh, we want to be lightweight in cars because batteries are heavy, so that's good for plastics. But we've been lightweight in cars for 20, 30 years, if not more, because of tailpipe emission targets and getting cars lighter weight. And actually that tailpipe emission isn't an issue with an electric car. The weight of the car is only an issue because it impacts range and you can improve range through other means. Batteries getting more efficient, batteries themselves getting lighter. So there's a real mix of impacts depending on the polymer with an automotive, some polymers are no longer needed.

For example, you don't need PE or PP for a fuel tank in an electric car, but you do need battery casings and components within the batteries themselves. So it's one that I think we just need to be cautious around how broad we make statements and actually to really do the homework and look into the detail of those things. I think the biggest risk for petrochemicals in automotive is the end of life vehicle regulations that are coming into force and now mandating that 20% of all plastics used in vehicles need to be from recycled sources. And so that has a big impact potentially on virgin polymer demand.

Daniel Pelosi:

Yeah, very true. And particularly interesting in what is a difficult costing environment for the automotive producers. So it's one to keep an eye on for the rest of the year. And-

Andy Orszynski:

Something I learned though it was very interesting is that when we talk about sort of tariffs and anti-dumping et cetera, and sort of taxes that are put on Chinese vehicles, actually is in a positive sign potentially for our domestic industry is one way that Chinese vehicle producers are trying to get around that is by actually producing in Europe. Now where the components come from is still a question, but we're actually seeing Chinese producers opening plants or planning to open plants in Europe over the coming years and potentially provide support to our automotive industry, albeit perhaps with different owners than we're used to.

Daniel Pelosi:

Indeed want to keep an eye on for the rest of the year as well. And with that in mind, turning to the final question here to wrap things up, I think it's important to touch on outlook. I think from our side on the pricing team, short term wise, from the meetings I was sitting in during the conference, it's still pretty pessimistic. I was discussing with Yazmine briefly before on the volatility that we're seeing in the upstream crude and naphtha complex and the potential negative impact that's going to have on some players in their margins for the summer periods in a season of the year that typically is very quiet and we see difficult conditions at the best of times for players in the industry.

A question for both of you, of course, but what is the view from both the industry and the Platts analytics team respectively regarding the outlook for the second half of the year in both market fundamentals and industry prosperity? And know kind of tying this to EPL, do you expect a substantial change or shift in dynamics by the time of the Valencia conference in Q4? Yazmine, let's start with you on this one.

Yazmine Khan:

I'm not really expecting too much change, to be honest with you. I think as we look to review our 2025 forecast, it's likely we will be revising down our demand estimates that we had put in late 2024. So coming to the end of 2024 when we were working through our supply demand updates, we were expecting that 2025 was going to be a relatively stable, maybe a slightly better year compared to 2024. Now with everything that's gone on through the first six months of the year, it's likely that our estimates in terms of demand and general fundamentals will all be revised down when we redo our forecasts. So yeah, I'm not really expecting too much change. It's a very volatile environment.

Some of these situations could very easily and very quickly be rectified in the next few days. So I think there's still that element of volatility there. But generally in terms of mood and outlook, I'm not expecting too much change. The market is generally pretty hopeful still I think for 2026, but I think that's been a mark of the European industry as a whole. We continue to say the next six months will be better than the current six months.

Daniel Pelosi:

Indeed. Yeah, no, very true. And Andy, on your end, on the olefin side, similar expectations?

Andy Orszynski:

Yeah, the word hope resonates strongly there. Several people telling me, oh, second, half of 26 things should start to get better. And I would ask the questions why and the rationale behind that and didn't often get to particularly compelling answers. I think a couple of signposts people are looking for is a peace deal in Ukraine, which should hopefully provide some positive news for the construction industry and obviously for the country itself. I think a filter down of the German infrastructure fund is also I think, hopeful that this stimulates a little bit of demand in construction. So those are probably the couple of events that we see that maybe get some demand lifting above these baselines, but certainly in the next six months from a demand perspective, not really any changes predicted. Think notwithstanding the volatility, there are a couple of fundamentals we expect still to play out over the next six to 12 months around feedstocks.

One is rising gas prices in the US with LNG coming online and potentially dropping oil prices in light of OPEC plus production increases or reversal of cuts. Now, notwithstanding the volatility in the oil price at the moment, I think there's a view that those two dynamics will still be going on, and that is ultimately, again, a hope that the competitiveness of naphtha-based steam cracking improves, which is obviously good news for Europe versus the Middle East. So I think, yeah, certainly some hope and some of it around pricing and margin, but I think on the demand side in the next six months, probably not much optimism out there.

Daniel Pelosi:

Certainly and a lot of hope to really focus on for market participants, especially as we know, we look to realign and to consider plans for 2026 and then the second half of the decade. We could discuss these trends all day, I'm sure, but unfortunately, we have to bring today's podcast to a close. So thank you very much Yazmine and Andy. Really, really insights from your side and let's hopefully do another one of these by the end of the year.

Yazmine Khan:

Thank you, Daniel.

Andy Orszynski:

Thanks Daniel. We'd love to speak again soon.

Daniel Pelosi:

Thanks, and thanks to you guys at home for listening. I've been Daniel Pelosi and this has been The Chemical Week Podcast by S&P Global Commodity Insights.