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Here's your host, Victoria Meyer.
Victoria: Welcome back to The Chemical Show where chemicals means business.
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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.
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.
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.