European companies may continue to cut operating rates

Recently, Hartwig Michels, president of the European Petrochemical Association (EPCA), said that weak market conditions, sluggish production margins and easing supply chain problems may open the European chemical market to cheaper imports, forcing more chemical producers in Europe to cut operating rates
.

Michels said that as agencies such as the International Monetary Fund, OECD and the European Commission continue to cut GDP growth forecasts, the economic environment has deteriorated faster and deeper than expected, and the weakness in many chemical markets is expected to continue well
into next year.
Michels said: "On the one hand, after the planned and unplanned supply disruptions of chemical companies in the first half of this year, they will return to normal
in the second half of 2022.
On the other hand, consumer confidence in the eurozone has fallen to record lows
.
The chemical market began to be oversupplied in the second half of 2022 and will continue into 2023, resulting in chemical production margins being lower than the healthy levels
reached in the first half of the year.
Producers may be forced to reduce operating rates, depending on how significantly and how quickly
demand is reduced.
”

At present, due to soaring energy prices, the production of some materials has become uneconomical, and the chemical and fertilizer industries in Europe have seen a large number of shutdowns
.
However, European policymakers have moved to increase gas stocks
ahead of the onset of winter.
At the end of September, the Nord Stream 1 gas pipeline from Russia to Europe leaked, but it did not have a serious impact on the market, showing the success of
these measures.
However, a cold winter could push Europe's gas reserves to dangerously low levels
.
In response, BASF has plans to reduce the production of
energy-intensive chemicals with lower margins if natural gas supplies are constrained.

As for improved supply chains, market sources said European chemical companies have benefited from global supply chain disruptions in the past, as supply chain problems have served as a shield
for European chemical producers from low-cost competition elsewhere.
"The extreme shortage of global interregional transport capacity since last year has indeed limited the flow of chemicals from Asia and the United States into Europe for arbitrage, allowing European producers to pass on rising raw material costs
almost entirely to downstream customers," Michels said.
But this is changing, and as global supply chain problems are gradually resolved, European imports of low-cost products are increasing, which is putting great pressure on
prices in the European market.
”