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"China's historical impact on global polymer demand is profound, but with the shifting sands of demographics and geopolitics, the future may see other developing countries rising, albeit not at the breakneck pace we've witnessed. The global chemical industry must pivot and adapt to these emerging complexities and opportunities." – John Richardson
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Victoria: Welcome back to The Chemical
Show where chemicals means business.
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you follow us on LinkedIn or subscribe
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You definitely do not want to miss
a single episode or any of the
interesting information we share online.
So do that this week.
I am speaking with John Richardson,
who is a senior consultant at ICIS.
John is a regular guest of the
chemical show, and he's an expert in
global chemical markets and has been
closely following and commenting on
how China is impacting the global
economy and the chemical industry.
John is always insightful,
usually a little bit scathing,
and definitely very interesting.
I think you're going to
enjoy this conversation.
John, welcome to The Chemical Show.
john: Thank you, Victoria.
Glad to be here again.
Victoria: Yeah.
Glad to have you here.
So we are sitting here firmly
in second half of 2024.
Um, everyone is wondering how is the
market playing out for the rest of
this year as we look ahead into 2025?
What I've been seeing, and as I've
been talking to people based on recent
earnings reports, based on what people
are saying, the answers tend to be mixed.
What do you see?
john: I think Victoria is sort of.
There'll be sort of temporary
ups and downs, obviously,
which we can't predict, right?
I mean, the things about logistics,
which are supporting markets
because of Red Sea, right?
So it's made Europe a bit
more protected, shall we say.
I think fundamentally we've got this
still in commodity chemicals now.
It's got this massive imbalance between
supply and demand, the, the scale of
which we've never seen before, right?
I mean, to give you an example I
very rarely look at Styrene.
I looked at Styrene for a client last
week, and it's not how the data is
consistent across all the petrochemicals.
So here's the numbers I can remember.
So we have operating rates averaging
globally from 2024 to 2030 at 75%.
Which, as you know, is very
bad, um, historically the
long term 88 percent globally.
Now, what you can do, a very simple
exercise, which is wrong, of course,
because it's just guesswork, is you
keep production the same, which is about
demand, isn't it, globally, and you
divide production by capacity, you take
capacity down to get back to 88%, which
is normal in the district conditions.
To do that, Capacity over
that period have to fall by 1.
2 million tons of total
across the seven years.
That's a lot.
Yeah, as opposed to our base
case of capacity growing at 5.
6 million tons.
So it's a mirror image, right?
Imagine that.
So it has to shrink by 1.
2 rather than grow by 5.
6 to get back.
And you start, you know, going into
the data, why are we are where we are?
Well, to keep saying, I need a wisdom
of crowds thing, um, about what
people thought would happen in China
before 2021, the Evergrande moment,
which we've talked about before.
And across petrochemicals, they
thought China would carry on
growing 6 to 8 percent a year.
Now it transpires, that's not
going to happen because of
demographics, the end of the property
bubble, the geopolitical issues.
So it's going to grow 1 percent
say, 3%, some people say minus even.
Wow.
Chemicals, possibly, I don't know.
But we know certainly 6 to
8 isn't going to happen.
Victoria (2): Yeah.
john: Global capacity was built
upon the basis of that 6 to 8%.
It was sanctioned before 2021.
So across all the value
chains, ethylene, propylene.
Much bigger than style,
you see the same problem.
Um, so to rebalance that, the
problem is, the core of this is
that, again, you look at the data.
It's quite remarkable that, you know, in
1992, China was 22 percent of the global
population, 7 percent of polymers demand,
if you look at the big 9 synthetic resin.
End of this year, 18 percent and 40%.
18 percent of the global
population, 40 percent of demand.
So you end up hugely dependent
on China for that demand.
So people built the capacity
assuming China would grow
more than it was going to do.
But the fact that it isn't, and because
it's, Such a driver of global demand.
Yeah.
Doesn't matter whether you're in
Brazil or in Argentina or anywhere.
The global price more
than have been expected.
Victoria: So John, one of the
things, uh, how about this, the
story that we used to tell ourselves
was that part of this growth was
because of the rising middle class.
So even with a, yeah.
declining population, as you've pointed
out, that because the middle class is
rising in these developing countries,
China, India, elsewhere, that that
was going to be the source of a lot of
the, uh, let's just take plastics and
petrochemical and basic chemical growth.
Is that not true anymore?
Is it still true?
How does that factor in?
john: I think it's the
simplification, right?
Not generalization.
I think if you look at the China story,
there was something remarkable going on.
Victoria: Yeah.
john: And again, we've discussed this
before, I know, Victoria, but I mean,
just to remind the people, I mean,
there were three economic phases, if you
like, which delivered tremendous growth
in China, particularly, which meant
it's per capita consumption, you know,
divorced from the rest of the developing
world and grew much more quickly.
There was economic liberalization in 1992,
they joined the World Trade Organization
in 2001 and sort of tariffs and quotas and
restricted exports to the West came up.
Yeah.
Yeah.
So they can maximize the advantage
of a youthful population then.
And there's this massive
economic stimulus in 2009.
We know the population of course
now is, it's a demographic
crisis the world has never seen.
The scale of this is incredible.
And you've got the end of the debt bubble.
You know, a lot of money
going to real estate.
So yes, China's got richer,
but it's grown too much.
Now you look at the developing world
outside China, which is much more
populous, It's grown, grown very
well over the next 30 years, but you
know, it's 68 percent of the global
population, 32 percent of polymers demand.
So you say, right, okay,
China's grown too much.
We got the demand growth wrong.
It's moderating.
Victoria (2): Yeah.
john: Um, is it going to
go in minus territory?
We don't know.
It may be, maybe that's the case.
at the same time as well, we have the
capacity, both in China, the Middle
East, less so the United States.
That was previous waves
of capacity, wasn't it?
The new wave is not that big.
But most of the capacity
additions are in China.
So it's had a capacity quicker
than people had expected.
So the middle class thing is, is true.
People get richer, they buy modern day
goods for the first time, blah de blah.
But in China, there was
something else going on.
It was these three stages of history, if
you like, which kind of were exceptional.
Um, forward, we have that repeat in
the rest of the developing world.
Can anybody, I mean, a lot of his export
focus growth, of course, in case of China.
Victoria: Do you see that happening?
Do you see other parts of the
developing world, whether it be India
or elsewhere, being as structured
to create these different programs?
Um, to drive some of that.
john: Yeah, it's a good question.
I mean, India is fascinating.
I mean, we think India's polymers demand
is one tenth of that of China, despite
it being a more populous country.
Right.
Yeah.
Um, but I think China still has massive
supply chain advantages in manufacturing.
Um, Which will mean they'll
still hold that position.
Well, the geopolitics were
separate thing, right?
The sort of trade tension.
Victoria: Well, and, and the
China demand John is for export.
It's not for domestic consumption, right?
Because at least to the U S India is.
When you think about finished goods,
and that's where I think a lot of the,
the China consumption goes, when you
think about finished goods, I don't
see a lot of finished goods coming from
China or semi or rather from India.
I don't see a lot of some finished
goods or semi finished goods
coming from India into the US.
john: Well, it's about India.
I mean, the education
system is problematic.
Um, still have issues around
infrastructure, but it has improved
power supply, investment simplification,
shall we say, makes it difficult.
Um, and there's a space given the child
dominates the manufacturing value chains.
I mean, there's lots of manufacturing has
moved to places like India, Bangladesh,
Pakistan for wage cost reasons.
But
Victoria: yeah,
john: you know, I think, and also the
question is, There's a demand in the West
for another China because we've got aging
populations across most of the G20, right?
So, you know, will the West, we had that
amazing period, didn't we, from I guess,
late 90s through to 2008, 9, 10, 12.
Well, later than that, when the
West was buying an awful lot of
stuff because the baby boomers were
at their peak of their earnings.
Well, no, we're all
retiring now, aren't we?
So, and also sustainability as well.
Victoria: And needing less stuff
and wanting a more sustainable world
and circularity and all of that.
Yeah.
john: We've all got young kids have got
different attitudes towards buying things.
I mean, they want experiences
rather than things, you know?
So, and then on top of that, you look
at Africa with its 55 odd countries.
It's a lump of demand, which is a lot
smaller than China, but you've got all
the issues around climate change, I hate
to say it, but corruption and conflict,
Victoria: you know,
john: and all the different countries
and customs regulations, et cetera.
How could Africa so middle class is
a very, very simple way of looking.
I'm not saying there won't be
great opportunities, right?
Victoria: Yeah,
john: but I think basically
we've got to get used to the
idea that China was a one off.
It was very easy for
the chemical industry.
The growth was You know, and
Victoria: it's, and it's a point
out, it's a single country,
a very under a single regime.
So you understood what you're working
with, as opposed to your point of 50
countries and regimes in Africa, uh,
other parts of the world, John, what
about, um, what's the effect of the rat
what's going on in the rest of the world?
So I feel like, uh, aside from.
The announcements that seem to be
occurring on a weekly basis about, uh,
chemical businesses shutting down and
assets shutting down in Europe, uh, not
hearing a lot directly about the Russia
Ukraine war and the knock on effects of
what's going on in the chemical markets.
I'm not hearing a lot currently
about, uh, global supply chains and
some of the challenges we're seeing
coming out of the Middle East.
Are they just secondary effects
at this point, or is it.
How are they driving things?
john: Well, as in the Red Sea, we
mentioned at the beginning, um,
I was talking to a Middle East
producer a few weeks ago and they
can sell polymers to Europe, but the
converters set the price entirely.
You know, you've got to go through
the Cape of Good Hope, haven't you?
Um, it's longer, it's more expensive and
you don't know where it's going to arrive.
So I think.
So theory going the rounds, people will
disagree with this, that it's giving
Europe a bit more protection, if you
like, as long as that goes on, um,
whether that's true or not, other people
would disagree given that the recent
data on Eurozone growth is horrendous.
The PMI the other day was really bad.
Victoria (2): Yeah.
john: So, but it's certainly
making it difficult to
effectively or profitably export.
You know, uh, to the West from the Middle
East, certainly, uh, South Korea is
similarly struggling to get polymers into,
uh, into Europe and they, they're relevant
because they can do all the grades.
Victoria (2): Gotcha.
john: Uh, Middle East can do a lot of the
grades, whereas China can't do the grades.
So it's not really an issue for a
lot of the sort of converters have
got to live with ground owners.
Um, but I mean, the broader issue.
So to
Victoria: a certain degree, it's
protecting the European plastics industry.
Yeah.
john: Anecdotally, look at the data.
I mean, I'm not entirely sure that that,
but anecdotally, that's what we're here.
I hear, um, I think, um, but the
broader challenges are still there.
Energy costs are still double what
they were before you, um, you've
got the Antwerp Declaration.
I think again, we talked
about that last time, but.
You know, set a framework, which some
people would say a bit late for trying
the things that need to be done like it.
I mean, I think with, with the
European chemical industry, I think
we get on to say sustainability now
is, is the future sustainability.
Is that how they brand themselves?
Not just brand themselves,
how they reinvent themselves?
Sorry.
And for that you need the EU to
create a unified waste, plastic waste
market, which we don't have at the
moment, a unified electricity market.
It takes 15 years to get a permit
to connect renewable electricity
or to build renewable electricity,
you know, all these things.
And we don't have chemical
recycling classified as recycling.
Victoria: That's right.
Well, and in fact, that's, that's maybe
one of the biggest challenges when I talk
to people across the industry, us, Europe,
uh, I don't engage nearly as much as in,
in Asia as you do, but this whole aspect
of, um, we want different products, right?
We want to quote unquote, sustainable
products, sustainable, green
electricity, green chemistry, et cetera.
And yet people are, companies are
struggling to get technologies
and products approved to be
able to use and accelerate.
Um, they're struggling to have
the backend infrastructure.
If you believe that circularity is one of
the answers, well, then the entire value
chain needs to be circular, not just one
component of it, because this whole, if
you build it, they will come is not true.
There's no, there's an insufficient
amount of feedstock available to support.
Even, you know, we were talking before we
started talking about, uh, recycled PET.
There's an insufficient amount of
recycled PET available today to
support the recycled PET needs.
Um, and so all the pieces have to
be working in sync and they're not.
john: Interesting.
Yeah.
A constant problem with feedstock.
Yeah.
We were saying before
about Naphtha, weren't we?
And SAF.
Great ideas.
Yeah.
But how do you make it scalable?
How would you get enough cooking oil?
That's right.
Um, is that really going to be more
than just a tiny drop in feedstock?
Or is it going to change the game?
You know,
Victoria: um, And then the question
is, how does it change the game?
And when does it change the game?
john: When does it change?
I mean, the thing is, if you think
about the concept though, you know,
you've got the CBAM possibly by 2030.
Yep.
So you suddenly have, um, you
know, ability to price carbon
overseas coming into Europe.
If you can get to that lower carbon
position and, and circularity is a
separate thing I know, but you get to
those two positions, then you have a
more competitive industry in theory.
But what's the scale of that industry?
Yeah.
Is it, you know, is it a scale?
Is it a smaller niche
industry, chemical industry?
So what happens to the crackers
in Europe is the question.
I was talking to my colleague
Nigel Davies about this yesterday.
Yeah.
You know, do they import
the base chemicals,
or do you keep a few smaller
crackers running and import
some of the base chemicals?
Because if you're a giant chemical
company in Europe, you still need
your own ethylene and propylene
probably, don't you, right?
Right, right.
Victoria: Well, and then, and then my
question to you, John, has, Europe learned
its lesson in terms of, uh, relying on
imports to be a critical feedstock, right?
So one of the challenges that they're
facing today, obviously, is because
they were completely reliant on Russia.
For natural gas, because again, it's
the, well, we don't want to produce
it here, so we're going to, but if we
import it, then it's more sustainable,
more cost effective, et cetera, that
works until something doesn't, and
things are going to go awry.
john: Do we have confidence in the EU
getting that geopolitical risk factor?
Um, and that, that, I mean, 27
jurisdictions and, you know, directives,
not regulations and, you know, I
mean, I've got some friends who would
disagree, um, but, um, it's just the
ability to, to regulate effectively
across the block that I worry about.
Yeah, right.
I mean,
Victoria: and then it assumes that
it's, it assumes that all the countries
and all the leaders in all the regions
across the world comply and stay the
same and don't ever want to change
the Their position in the world,
and history says that that's not the case.
john: And we've got to say it
costs a year alone is 27, isn't it?
Um, I mean, it's interesting.
We have a discussion with, uh, under the
client the week about green hydrogen.
China is pouring a massive amount
of investment into new energy, new
industries, you know, green industry.
So you've got VVs, obviously, all
on those solar panels, don't we,
and all the tensions around that.
But apparently green hydrogen,
because it's got lots of
renewable electricity, which is
basically free over supply, right?
But as this contact was saying
to me, what's traceability on
that green energy coming in?
Is it really based on coal or
renewable electricity for electrolysis?
Victoria: Yeah, who knows?
john: Um, and also why can become
dependent on green, uh, on, on ammonia
imported from China when you just
broke your dependence on Russian gas?
Victoria: That's my point.
That's my point.
I mean, just should, should
Europe become beholden on that?
And how do they make sure they're not?
john: Yeah, so I think the sustainability
is a factor to reinvent, but is it a
smaller, more niche industry and what's
the geopolitical aspect to it as well?
Victoria (2): Yeah.
john: But I don't have a clear view of
how Europe gets from where we are today
to a competitive position at the moment.
Victoria: I don't either.
All right.
So John, I'm going to take you through,
um, you published with your, your,
uh, styrene commentary and assessment,
um, 10 interconnected forces shaping
the new global chemical landscape.
john: Hmm.
Victoria: Um, So, so a couple of them, and
we've already talked about it, so maybe
I'm going to get you to chime in on some
of them, one of which was, you know, most
of the G20 countries, which account for
70 percent of global polyethylene demand.
Immigration is, of course, the answer,
um, but it's not easy to do in the West.
I mean, you know what, John,
it's not easy to do in the East
either from what I've told.
So it's just not easy to do globally.
Am I right?
john: That's true.
I mean, obviously the poster boy
for demographics is Japan and
immigration to Japan is difficult and
it will be the same in South Korea,
I think as well, cultural issue.
Victoria: So what's interesting is, so I
watched, did you watch the Olympics, John?
So the Olympics happened,
what, a month or so ago?
Did you, did you watch this?
john: Not much.
Victoria: Okay.
I, I, well, and it was not a great,
Well, it was an okay time zone for you.
Who knows?
Anyway, I watched a lot of it
in, um, I actually find observing
the composition of the different
teams to be very interesting.
And so, you know, sitting here
in the U S and a lot of people
say we're not very diverse.
Um, And let's be honest,
nothing is perfect, right?
This is not, uh, I believe that
nothing is perfect and there's a lot
of policies and other things that need
to potentially get straightened out.
But when you look at the
composition of the U S Olympic
team, virtually every race, color,
nationality was represented, right?
Same is true of much of
the European teams, right?
So when we talk about immigration,
it's immigration at the moment.
And yet US and Western Europe
are actually quite diverse.
If you take the Olympic
team as a snapshot of that.
Now the same is not necessarily
true of other regions.
So it's really the developing regions.
If you just, again, just take the
Olympic team compositions as a,
as a very simple snapshot of this,
uh, still huge opportunities for.
Victoria (2): Immigration.
john: Yeah, I think that's right.
I mean, I think bring me your
huddle muscles, a sort of
thing, you know, the US, I mean,
despite the politics, which let's
not talk about that, um, the US is a
very diverse country and it's built
on immigration as is Australia.
Victoria (2): Yeah.
john: And we have politics there again,
which we create issues, but, um, but it's,
it's the constant issue of politics, that,
that there is a supply, another supply
of babies in other countries there, but
it's ability to constantly move them
to the developed, developed countries.
I think, and as you say, some, some
countries are much less diverse,
Victoria: um, or perhaps it's,
and they're much more populous.
So, I mean, there's, there's
a lot of reasons behind it.
So I think, um, I think, but I do think
immigration globally is one of these
things that's just difficult to execute.
Right.
Um, the next force that
you guys recognize is, um,
uh, basically not enough people of
working age is that the next point?
Right?
So people are just
trying to get into this.
So this is all the first 3 are
all about people in population.
Um, climate change is the force 1, right?
So climate change will be
more successfully mitigated.
In the rich developed world, um,
but the risk is that the developing
world, uh, does not get the
financing needed to support that.
Is that, is that really true?
John?
I mean, you, you reference
other than China.
So you're saying except China.
So China's got a ton of investment,
but the rest of it, you see.
john: I hope not.
Yeah, I hope it is available, but
there's a risk it isn't right.
Um, and it's obviously when you think
about equatorial regions of when we were
heavily affected sub Saharan Africa.
Yeah, you know, and there was the
conduct got the conflict issues as well.
Um, you know, the governance issues, um, I
mean, ironically, places like Canada will
have more growing seasons, won't they?
Victoria: Yeah, theoretically.
john: Ironically, you know, there's a
mountain of methane you'd be released
from, tundra, permafrost, nevermind,
that's quite worrying, isn't it?
But anyway, um, uh, I do worry, right?
I mean, I don't think it's,
I don't think it's evident.
I don't think we can
avoid it from happening.
Victoria: Well, and I think the
flip side of this, John, and this is
part of the debate and the dialogue
that I've, I've seen and heard is
when you look at, for instance, Uh,
greenhouse gas emissions or relative
greenhouse gas emissions again, U.
S.
Western world, Western Europe have
significantly decreased versus where
it was 10 or 20 years ago, and that the
bulk of the emissions are now coming
from China, Asia, India, elsewhere.
Um, and so there's this counterpoint that
says, how much further do we have to go to
support pollution and
the rest of the world?
john: Do you hear that?
Do
Victoria (2): you hear that and see that?
john: I get that, but
I suppose the issue is
I mean, you almost want emissions,
and it's how you mitigate and
capture them or control them
or reduce them, minimize them.
You want, almost want plastic
waste, but you want to collect it
and recycle it wherever possible.
So what I'm saying is that the very
nature of economic growth means that
emissions and plastic waste go up.
Because you want people to
escape from poverty in Africa.
You want me to be wrong
about climate change.
You want me to be wrong about
governance, and that the 55
countries can work together.
You want that to be wrong.
You want people to be buying
modern day food wrapped in plastics
for the first time, so they
don't die of bloody dysentery.
them to get modern day medical
supply chains, they have their first
smartphone to do business, they want
to have decent roads and education and
healthcare, etc, etc, etc, which is
all emissions and all plastic waste.
Victoria: Emissions, plastics,
chemicals, petroleum,
john: you know, microplastics,
etc, etc, whatever.
Forever chemicals, you
know, all this stuff.
So how do we deal with
that in a sustainable way?
So that's why we need to transfer
technologies and know how, and you
cannot expect the developing world
not to increase its emissions.
That's silly.
We've reached the point now where
we're rich, we're comfortable.
We can afford to worry about these things
where, you know, in the developing world,
it's about feeding your family, isn't it?
Giving your kids an opportunity.
Yeah.
So I think you.
I mean, there's certain things around
coal, obviously, where you can think,
right, okay, China is a big emitter of
DOT because it's coal fired power gen.
How do you deal with that?
Um, Yeah.
It's not a case of just saying, stop using
coal, because where's the alternative
energy going to come from, you know?
Victoria: Well, I mean, you could
be, you could be burning down trees
and that's actually a worse emissions
and worse for the environment.
Right?
So I think I've, I've seen some
of those same logic, right?
If you move from a oil burning
stove to a gas burning stove, it's
actually a significant improvement.
It's still fossil fuels, but
it's a cleaner fossil fuel.
So I think it's all, it's that relativity
that we have to take into consideration.
john: Exactly.
Step changes towards the goal.
So I think, um, the West
has to lead, I guess.
Victoria: Yeah.
Okay.
So then my next one on this, on
your list, John, is China is the
immediate center of the crisis
for the global chemical industry.
And we started out talking about
just how oversupplied the market is.
And yet how much investment
China appears to still be making.
Is that true?
Are they still, do you still
see them actively investing like
they were a couple of years ago?
john: Good question.
It's more complicated.
I think between 2014 and 2024,
so let's make it 10 years.
It seemed very straightforward that
China said, we want self sufficiency.
We're going for it.
Right.
But, um, You know, anecdotally
again, it's getting the data out of
China is always a challenge, right?
Reliable data.
People have been around the construction
yards for all the equipment for
chemical plants, and they're quiet.
And China makes its own equipment now.
It doesn't need to be imported anymore.
And what seems to have happened, and
there are arguments about whether
this is a temporary thing to do
with the end of the five year plan.
You know, the current
five year plan is ending.
People tend not to do things until towards
the end of the five year plan, but each of
the provinces has a carbon budget, right?
Obviously the, the, the developed
provinces are producing more carbon.
So in order to make space for a
new chemicals plant, you've got
to close other facilities down.
And, um, because the EVs are growing
so rapidly in China, They're capping
the refinery capacity from 2027.
So the two issues there, is
there space for new chemical
capacity within carbon budgets?
Is this just a five year plan thing,
or is it something more fundamental?
And will we have the feedstocks
to keep growing chemicals
capacity at the same rate?
As he has been going forward,
Victoria: or is it refineries?
john: Yeah.
Or is it a case of turn those
refineries more into chemical centers?
Because if you, you don't have
the demand for the gasoline and of
course you can use the molecules
to make more feedstock, can't you?
Not, not crude ultrachemicals now,
cause that's more grassroots, but
just, you know, existing technology
or well established technology, shall
we say, to, to make more, you know,
chemically intensive refineries.
Yeah.
Complicated.
I don't know.
I think, um, But then you've got to
throw into that the possibility that
the geopolitics come into it in China.
If he does it carry on importing
lots of chemicals and polymers
might do it from his friends
and they tend to be in the Middle East.
So there's that issue.
Um, it's certainly more complex.
Victoria: Help me understand
what you, what you're seeing
from where you sit, John.
john: Well, if you think a lot
more NGLs have been discovered in
the Middle East of late, you know,
NGLs, but the ethane has been quite
tight in the kingdom and elsewhere.
There's lots more of that, lots
of confidence that we can build
more, um, across the Middle East.
Um, so is that going to be the way
forward that they build that capacity
and supply either the feedstock directly
or the chemicals and polymers to China?
More likely the chemicals, I think.
Yeah.
Problem is adding value into the
feedstock and supplying it to China.
So then the question is, where
does that put the United States
long term, given the geopolitics?
Um, I think that these are
questions I cannot answer, but
they need to be asked by companies.
You know, what's the trade flow
is going to be like in 10 years.
Are we, I've talked about
this before, bipolar world,
China and its friends,
the US and its friends.
And what, you know, given the,
you know, if China cannot push
self sufficiency that much harder.
There's still going to be a
huge deficit on MEG, PX and
polyethylene for the next 10 years.
Victoria (2): That it still needs
some more, you're saying it's short.
john: Well, and then of course,
then you think, okay, no, no,
no, no, no, no, that's not right.
Because the man's going to collapse.
Victoria (2): Right.
john: Uh, so you speak the other way.
I mean, my colleague, Kevin Swift,
I think, you know, Kevin used to be,
uh, the American chemistry council.
Didn't they?
Yeah.
I mean, he did some interesting
work for our magazine ICB and
he, he would disagree with that.
Well, first of all, he starts
with looking at population.
And, um, the Chinese population is 1.
4 billion officially in 2020.
It could be between 130 and 250
million lower than that figure
because there's one demography.
Victoria: So 10 to 15 percent,
is that what that amounts to?
john: Breathtaking, yeah, numbers.
I mean, basically, the data
problem in China has always
been there, but this is about.
One demographer from the Wisconsin
Madison University looked at primary
school enrollments and vaccination
rates and said the numbers don't add up.
Victoria: I think I've seen some of
that from, from that,
it's from that professor.
Yeah, absolutely.
john: Yes, exactly.
Yeah.
It's something in the Wall Street
Journal, which we've got, which piqued
our interest chart showing his estimates
versus UN and various other people.
So he did some modeling what that means.
Um, and from memory, by the end
of the century, if you take the
pessimistic Dyer, um, outcome, uh,
I think base chemical, base polymers
demand is not 89 million, by the end
of the century, it's 30 odd million,
for bigger than 9 synthetic resins.
And then what he did is, taking that
Dyer scenario, let's assume that By
2050 now, at the end of the century,
China becomes a major net exporter
because demand growth is lower of
those nine synthetic residents.
Our base case is that
it was a net importer.
So it's really complicated.
If you're in a lower demand growth
scenario based on these demographic
outcomes, these diagraphic outcomes, then
China can become a major net exporter.
But I think we just don't know.
I mean,
Victoria: To whom it
becomes the question, right?
Because who who's needs it because
everybody's already in net exporters.
So, um,
john: And also the geopolitics coming
to it, can they export because, you
know, Then there's the issue about,
you know, direct chemical exports.
I think it's value chains as well, right?
So, in polyester fiber,
they're the world's biggest
net exporter by a long shot.
They totally dominate the
polyester fiber business.
Where else would you get the
molecules from than China?
So, you know, if it's a textile mill
in Bangladesh, polyester fiber comes
from China, that's going to carry on.
Why on earth would you build a whole
new value chain around polyester
fiber, even with the trade tensions?
Polypropylene, however, there's lots
of other producers of polypropylene.
So I'm talking about direct
chemical exports now.
Victoria: Yeah, it's a
pretty fragmented market.
Yes.
john: So polypro, the other
producers may say, well, we
want to protect our position.
So you get more anti
dumping, uh, more trade.
I mean, you've got Brazil increasing
import juices potentially on
polypropylene, for example.
So he produces incumbent producers saying
so that that makes it difficult for them
to export in some chemical value chains.
Yeah.
Victoria: Yeah.
So, all right.
So, John, yeah, it
sounds like we don't know
john: What we do know that the essential
part of Victoria is this is a downturn.
That's not going to go away.
Because the scale of capacity
rationalization required to get markets
back into balance is off the charts.
Victoria: So what do we do instead?
I guess maybe that's the question, John.
So maybe this may be our wrap up, our wrap
up question, because we didn't get through
all 10, but I'll share them online.
And I know that you'll give me
some slides and some links and
things to share, so thank you.
Um, we're in a period of
wrap of dramatic oversupply.
The likelihood of getting enough
rationalization to accommodate and get
us back to typical or preferred operating
rates, um, isn't going to happen quickly.
So what are we doing, John?
What are companies doing when
you talk to your clients?
Um, what are they talking about?
john: I think short term, it's
understanding every regional market.
Looking for arbitrage
opportunities, right?
Where the money is to be made.
So being flexible about what you produce,
where you produce, when you produce it.
I mean, I'm off to Turkey in a few weeks.
That will be interesting.
There are opportunities in
different markets, right?
And so it's not all linear.
You can make money.
You can save money as
well by being flexible.
That's the, that's the key
in commodities, obviously.
Then longer term.
So that's the short term.
These are big generalizations, of
course, Victoria, lots of detail.
Longer term is where you are as a company.
Who are the winners and losers?
Victoria: Well, that's what's
going to be my question.
Who are the winners
and who are the losers?
Uh, it just, if you
were to characterize it.
john: In, a big commodity
chemicals, you think probably the U.
S.
Geopolitics aside, and you can
still export to Europe, can't you?
Of course.
Latin America, they're the
bigger markets for the U.
S.
You've got the Middle East with all its
extra hydrocarbon feedstock, hydrocarbons.
And you've got, I guess in
commodities, you've got China
wanting to be bigger, you know.
Victoria (2): Which is all contradictory.
So then who are the losers?
john: Uh, well, we've talked about Europe.
Can Europe redefine itself
around niche, sustainable?
I mean, I have my doubts.
South Korea has got major problems
because, um, on a commodity basis,
People say, well, how much percentage
would you have to shut down?
You can play with the numbers.
They lose the China market.
They struggle to export elsewhere.
What do they do?
I mean, Japan's interesting in that
they've been consolidating for 20 years.
Uh, and they're focusing on
decarbonization, hydrogen economy,
all sorts of stuff going on.
There are lots of
innovation into composites.
Let's not hit the EU target.
The target the EU want, in theory,
25 percent of automobiles be made
of recycled plastics by 2030.
Very ambitious target, but you know, can
you, can you innovate to help the EU hit
that target through compounding, right?
So I think you need to decide, am I
a niche, more niche chemical player?
There's some commodities, but I
can't be a huge commodity player.
Am I a huge commodity player?
Where do I sit on that spectrum?
Am I niche niche, slightly
niche, or a big commodity player?
But I think the big commodity players
will be limited to those three regions.
China, Middle East and U.
S., Canada, I suppose we
can throw in, can't we?
Um, you know, it's difficult to imagine.
I mean, the, the, the Southeast
Asia is interesting because
you've got the incumbent state
owned or state connected company.
Victoria (2): Right.
john: And they'll be okay, but
I can't see them expanding much.
They'll be okay in that
regional market, right?
Probably.
Because they've got oil
and gas to support them.
I don't think the chemicals
business is a problem.
not going to expand much So they'll,
they'll hold if you like, but then
if you look elsewhere, you've got
Europe challenges, you've got South
Korea, you've got Japan on well on
the way towards consolidation, they'll
close more commodity capacity down.
Singapore is interesting because it's
been based on exporting to China.
They're going to have been some
interesting issues, I think.
Victoria: They have a very high
cost basis coming out of Singapore
john: anymore.
So, so it's, you've got to decide
where you want to be in 10 years time.
Where's your competitive advantage,
and it's a different game, I think.
Victoria: It comes back to strategy.
Right.
So I think we, uh, we went through
a period of time that you didn't
have to be strategically strong.
john: I'm going to pinch that.
That's a quote.
I like it.
Victoria: It was really good.
I don't know, but I think so.
Right?
I like you.
It's kind of like, uh, my, my shorter
analogy on this John is in 2000 and 2001,
or sorry, in 2020 and 2021 in the U.
S.
logistics were so tight.
Anybody that had a truck and could
get a trailer could become a logistics
driver and a hot shotter of, you know,
commodity non hazardous products.
And then 2022 comes along when
the logistics kind of lined
out and it was like, oh, well,
crap, that didn't work anymore.
I couldn't do it just because
I had the assets and the
money to set it up up front.
Now you have to get strategic again.
And I suppose we're kind of there again.
So if you look at, um.
Let's just say the 2010s,
the 2000s and the 2010s,
a lot of companies could build and
grow and maintain a market position
just because they were there.
But now we have to get to be strategically
smart and making real strategic decisions
about where you're playing in order to
be able to thrive into the next decade.
john: I think that's right.
There's lots of micro decisions in there
as well, at least the macro, right?
Victoria: I come up with good
stuff once in a while, John.
john: That's good stuff.
I mean, since I just think , the story
of in Australia with the commodities
boom, I don't know if it's true, but
it's a good story about the guy who
works on a mine site turning a stop go
sign, right, left and right, earning more
than 150, 000 Australian dollars a year.
Victoria: We have the same stories in,
in the U S uh, like during the shale
gas boom, when it was really booming.
Um, truck drivers that were
driving like water and sand,
we're making 100, 000, 150, 000.
Um, now the challenge, of course,
is finding somebody that wants to
be a truck driver and that's willing
to stay, uh, drug free and safe.
All the things that are required
because you need to be able
to, you know, put a mask on.
But like if you're in, I remember coaching
people like seriously, just like, just
don't do drugs and you can get a job.
john: Oh dear.
Yeah.
There's zero tolerance for that.
Yeah.
Victoria: Yeah.
Absolutely.
Absolutely.
Anyway.
Well, John, this was good.
Thank you.
Thank you for sharing your insights.
And, uh, I think we'll see where
these forces go here through the next
rest of the year, uh, and going on,
Victoria (2): but your advice would
be pick where you want to win.
You have it.
john: Yeah.
Victoria: All right.
Thanks, Sean.
Thanks for joining us again.
And thanks everyone for listening today.
Keep listening, keep following,
keep sharing, and we will
talk with you again soon.