![]() ![]() ![]() The region’s operating rates of ammonia decreased by 35 percent for ammonia in 2022, compared with rates in 2020. The reduction of the gas supply in Europe led to significant shutdowns as well as reduced production for gas-linked chemicals such as ammonia and methanol (Exhibit 2). In Europe during this time, the prices of ammonia and urea spiked by 130 to 140 percent, compared with the beginning of 2022. In mid-2022, the price of gas in Europe skyrocketed from an average of less than $20 per million British thermal units (MMBTU) to more than $70 per MMBTU, leading to significant cost inflation for petrochemicals, especially those that use natural gas as feedstock. This is especially true for natural gas–based chemicals in Europe that have experienced strong increases in production cost, affecting regional competitiveness and consequently sourcing of product.Īlthough the high profits in North America and Western Europe have normalized to lower levels, the petrochemical industry in Asia has remained a challenge.Ĭompetitiveness of gas-based chemicals. In turn, the impact on global petrochemicals has been significant. The invasion of Ukraine in February 2022 has had a profound impact on the lives and livelihoods of millions of people, leading to heightened fears of an economic recession and food shortages, among other things. Gas and power supply and prices in Europe strongly affected As a result, some Asian players cut operating rates. On the supply side, several large-scale chemical projects, generally integrated crackers and derivatives units-most years in the making-came online in 2022. And decreased demand growth put downward pressure on crucial petrochemical product prices. Zero-tolerance measures for COVID-19 in China were one factor, which contributed to the contraction of manufacturing activities in China and lower-than-expected petrochemical demand. Relatively slow economic growth in Asia continued to affect profitability. Elevated oil and gas prices, as well as decreased demand in China, led to historic low margins 1 Specifically, integrated ethylene and polyethylene cash margins. Although the high profits in North America and Western Europe have normalized to lower levels, the petrochemical industry in Asia has remained a challenge. Regional overcapacity and relatively low growth in Asia put pressure on marginsĭifferences in regional circumstances persisted from 2021 to 2022. In Europe, the polymer margin spike in 2021 also reverted to historical levels. The price differential for high-density polyethylene (HDPE) between China and North America declined from more than $700 per ton in the second half of 2021 to almost parity today, and the price differential for PP declined from more than $700 per ton in the second half of 2021 to around $200 per ton today. In North America, crackers with advantaged gas-based feedstocks, such as ethane, generated historic high margins in 2021 those margins declined in 2022 as polymer prices approached parity with Asia again as trade constraints were resolved. This article is a collaborative effort by Zhou Peng, Theo Jan Simons, Jeremy Wallach, Adam Youngman, and Yasmine Zhu, representing views from McKinsey’s Chemical Practice. In Asia, prices for many chemicals were decoupled from the West, driven by logistical challenges in container shipping. This was driven by strong demand recovery from COVID-19, supply chain constraints from container shipping, and tight markets linked to production disruptions caused by a major winter storm in early 2021, all of which led to relatively high prices and margins. ![]() Petrochemical companies earned record-high revenues and profits in 2021, as well as in the first half of 2022 (Exhibit 1). Eased supply chain constraints reduced regional profit pools In 2022, four themes rose to prominence: eased supply chain constraints, regional disparities, natural gas–linked chemicals volatility, and sustainability acceleration. And in the past year, petrochemicals value creation was affected by the war in Ukraine, global inflation, and the risk of recession-all while the world continued to recover from the worst of the pandemic. In 2021, rising commodity prices and supply chain disruption resulted in record performance as well as a growing number of sustainability partnerships and commitments, particularly in recycling. In 2020, the outbreak of COVID-19 led to increased demand for household goods and consumer products, and petrochemicals proved remarkably resilient. For the petrochemical industry, the past three years have been marked by disruption and volatility. ![]()
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