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Petrochemicals to slump post pandemic

COVID-19 lifted demand for some products, but industry overcapacity lingers

by Alexander H. Tullo
March 17, 2021 | A version of this story appeared in Volume 99, Issue 10


A photo of milk jugs.
Credit: Shutterstock/Alphonse Mc Clouds
Polyethylene demand remained strong throughout the COVID-19 pandemic.

With the worst of the COVID-19 pandemic behind it, the chemical industry can look forward to an economic recovery, according to analysts who spoke at the IHS Markit World Petrochemical Conference, held online March 8–12. However, owing to lingering oversupply, profitability in the petrochemical sector won’t be stellar for several more years.

“We’ll see growth accelerate through the end of this year and the beginning of next year,” Nariman Behravesh, senior economic adviser at IHS Markit, told viewers in his forecast for the global economy.

The US economic stimulus, plus pent-up demand from consumers unleashed upon a reopening economy, could lead to “exuberant spending” but not a “blow out,” Behravesh said. Services like dining and cinemas that were clobbered during the pandemic, should see a surge in demand, he said. But spending on manufactured goods, which remained strong during the pandemic, could slow down.

Healthy consumer consumption in 2020 spurred growth in demand for basic chemicals such as ethylene, propylene, and p-xylene, all of which are important raw materials for packaging.

“We have seen polyethylene producers flourish in ways no one anticipated,” said Nick Vafiadis, vice president of plastics for IHS Markit. He had expected 2020 would be a year of lackluster profits because of excess capacity. Instead, “COVID ended up being a demand driver” as more people worked from home and relied on e-commerce for goods.

Additionally, Vafiadis said, the pandemic delayed the startup of new plants that would have swamped the market. And more recently, the Texas freeze idled plants and temporarily put the ice on much petrochemical production.

With the pandemic ending, it will soon be back to a sluggish reality for chemical makers. “We entered 2020, we entered the pandemic if you will, heading into what I would call a structural oversupply,” said Mark Eramo, global vice president for oil markets, midstream, downstream, and chemicals at IHS Markit. “The amount of new capacity being built, in many of the value chains, was exceeding, even at a steady state, the fundamental growth rates that we would have seen historically.”

The slump should linger, Eramo said. According to IHS indicators, petrochemical profitability peaked in 2018, then declined by about 30% in 2019. It held up at a level that was “almost surprising” in 2020. He doesn’t expect profits to increase significantly until 2024.


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