The outlook for the global chemical industry is uncertain this year

Recently, at the Global Specialty and Basic Chemicals Conference held by Credit Suisse, representatives from Dow Chemical and Leander Basell said that market conditions in Europe have deteriorated sharply in the past month or so, market conditions in Asia remain poor, and market conditions in the United States are uncertain. The outlook for the global chemical industry for the remainder of the year is not clear.

At the meeting, Ken Lane, executive vice president of LyondellBasell's global olefins and polyolefins business, said, "Chemical demand and margins have declined significantly over the past six weeks or so, particularly in our European operations. We are currently seeing the negative impact of inflation and energy prices. This has obviously compressed our margins and reduced demand." Despite the market environment in Europe, Leander Basell's assets in the region continue to be profitable due to increased integration, Lann said. However, an unplanned shutdown of the company's steam cracker in Belle Donne, France, is expected to reduce the company's third-quarter earnings before interest, taxes, depreciation and amortization (EBITDA) by about $100 million.

Market conditions in Asia have not deteriorated, but they have not improved either. Lane noted, "In the Asian markets, we don't see significant growth, but rather challenges in terms of profitability." For the U.S. market, he added, "While consumer demand in the U.S. has been quite healthy, demand for durable goods remains low and the export economy is currently poor. The pressure in export markets has started to feed back into the U.S. market. Margins in the Americas are also compressing."

Howard Ungerleider, president and chief financial officer of Dow Chemical, gave a similar forecast and announced that Dow Chemical expects third quarter EBITDA and net revenue to be $600 million below current analysts' general expectations. This figure represents a 25 percent decrease from the estimated $2.4 billion in EBITDA and a 4 percent decrease from the estimated $14.4 billion in net revenue.

Since our second quarter earnings call, ongoing geopolitical tensions, higher energy and raw material costs, and record inflation have really weakened demand and consumer spending in European end markets, and consumer confidence in the Eurozone now continues to be in negative territory," said Ungerleider. Recently, the European Purchasing Managers' Index contracted below 50 and overall economic and industrial activity is slowing significantly." He believes that China's recent interest rate cuts and post-epidemic recovery will boost growth until 2023, but for now, the situation in Asia remains poor. Although the U.S. is in a much better position, high inflation and logistics constraints have pushed PMI to its lowest level since mid-2020, while rising interest rates led to a nearly 10 percent drop in new housing starts from July to August.

In August, Dow Chemical announced it was temporarily reducing its global polyethylene capacity starts by 15 percent. We reduced our starts to align production with the supply chain, logistical constraints and demand," said Anglade. We're seeing this across the industry as well. Dow Chemical has seen more than 30 Asian and European producers cut production."