Sunday Thematic & Weekly Recap

Basic Chemicals and Europe: Mutually Exclusive?
June 16, 2024
Commodities Mentioned:
Ethylene, Polyethylene, PVC, Polypropylene, EVs, Oil, Natural Gas, Hydrogen, Ammonia, SAF, PET
Companies Mentioned:
OMV, Westlake, GAIL, Borealis, Borouge, ADNOC, Formosa Plastics, OxyChem, Air Products, ExxonMobil, Nova Chemicals

C-MACC Sunday Thematic & Weekly Recap

Basic Chemicals and Europe: Mutually Exclusive?

  • Greater political uncertainty in Europe adds to a plate full of challenges for the European Chemical Industry, especially in energy-intensive basic chemicals. Political stagnation may ease some pressures but boost others.
  • Protectionism will likely drive higher tariffs in Europe, but with little political will to help dirty industry (that may change), tariffs may not help chemicals enough. A collapse in oil prices would ease some pressure.
  • However, the world continues to build new chemical capacity, adding lower-cost production than in Europe, and European capacity will inevitably need to close. We highlight a possible legal constraint to consolidation.
  • China is becoming more competitive as local industry presses forward faster than in Europe and the US, driving faster experience curve progress and greater economies of scale – protectionist tariffs must reflect this edge.
  • Otherwise, we look at messages from Westlake and OMV at recent investor updates, some schizophrenia at the IEA with energy supply projections, and the longer-term risks of short-term moves to curb Chinese imports.

Exhibit 1: Europe’s competitive disadvantage is off its highs in ethylene but still well above a 20 or 30-year average.

Source: Bloomberg, C-MACC Analysis, June 2024

See PDF below for all charts, tables and diagrams

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