Ukraine crisis escalates, oil prices hit $100!

The conflict between Russia and Ukraine, the price of natural gas and crude oil soared, the price of Brent crude oil futures in London broke $100 for the first time in more than 7 years, and the price of natural gas soared 40%! What impact will it have on the chemical industry?

Brent crude futures break above 100 for the first time in more than seven years

According to Xinhua News, Russian President Vladimir Putin delivered a televised speech on the morning of the 24th and said that he had decided to launch a special military operation in the Donbas region
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Brent crude futures in London for April delivery rose to as high as $100.
04 a barrel at one point after Putin's speech, and light sweet crude futures for April delivery on the New York Mercantile Exchange rose to $95.
54 a barrel
.

It was the first time since 2014 that Brent had surged above $100 a barrel
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Market analysts believe that the outside world is worried that a conflict between Russia and Ukraine will break out and impact the global energy supply, stimulating crude oil prices to soar
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Russia is the world's main energy supplier, and Europe depends on it for about a quarter of its oil supply and a third of its natural gas
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Warren Patterson, head of commodity strategy at ING Groep NV, said: "The oil market is waiting to see how the West responds to the latest Russian actions
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As a result, we may see further volatility in the market and the need to price in a larger risk premium
.
"

Oil prices could average $110 in the second quarter as Ukrainian tensions continue to escalate, JPMorgan said this week
.
Crude oil prices are likely to continue higher in the next quarter, before falling back to an average of $90 by the end of the year
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According to foreign media reports, the Biden administration of the United States is considering coordination with allies to once again use its emergency oil supply - the release of the Strategic Petroleum Reserve (SPR), in response to a surge in oil prices caused by Russia's actions against Ukraine
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Chemical market players keep an eye on potential consequences

For now, there are no signs of disruption to the European petrochemicals market from the escalation in Ukraine, but market participants are keeping an eye on the potential consequences
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With oil pushing toward $100 a barrel and natural gas prices becoming more volatile, market players expect chemical companies' profit margins may fall as lower downstream demand and higher costs may not translate into higher selling prices
.

Ukraine's petrochemical industry is very limited, with only Karpetneftekhim operating a steam cracker in Kalush in the western part of the country
.

The cracker has a capacity of 250,000 tonnes/year of ethylene and 125,000 tonnes/year of polymer grade propylene
.
Ethylene is used locally to produce HDPE, LDPE and PVC
.
Propylene is mainly exported to Poland, with a small amount to Germany and Slovakia
.

There is also an associated plant that produces about 200,000 tons of caustic soda and 180,000 tons of chlorine per year
.

The Kalush steam cracker, then controlled by Russia's Lukoil, was closed from 2012 to 2017 due to disputes over pricing and reliance on Russian raw materials
.
Since it was later sold to local entrepreneurs and relaunched, the unit has access to a wider source of raw materials under the duty-free regime
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Russia exports a small amount of chemicals
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Currently, the initial U.
S.
and European sanctions against Moscow targeted individuals and banks linked to the Russian government, so there is no immediate risk to existing trade flows
.
However, expanded sanctions could have an impact on the chemical market
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According to Argus, there are signs that some buyers of Russian chemicals and downstream products such as synthetic rubber and potassium chloride have made some contract purchases as early as possible to avoid tougher sanctions
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If buyers have other options, they may become increasingly cautious about future purchases from Russia
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Russia's largest chemical export is methanol - 1.
4 million tonnes to the EU in 2021
.
Methanol exports from Russia account for an estimated 15% of European methanol demand, so if replacement is required, it will have a significant impact on the market
.

Synthetic rubber is another area that could be affected
.
Russia exports rubber, mainly polybutadiene rubber, styrene butadiene rubber, and isoprene rubber, to many of the world's major tire manufacturers
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Some tire makers have been increasing inventories of synthetic rubber in response to the uncertainty
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At the same time, some European synthetic rubber producers may regain market share opportunities
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Olefin trade between Russia and Europe is limited
.
Statistics show that 67,000 tons of propylene will be exported from Russia to Europe in 2021
.

Russia has increased polymer exports over the past few years
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Exports of polypropylene to the EU reached 352,000 tonnes last year, up from 51,000 tonnes/year in 2019; HDPE exports increased from 18,000 tonnes/year to 146,000 tonnes/year in the same period
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However, these volumes are still small in the context of the overall European polymer market, but they can affect spot market sentiment
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So far, Russian polymer exports have not been disrupted
.

In the long term, Russia is ambitious to further expand polymer production and exports
.
The first stage of the Baltic Chemical Complex will have the capacity to produce around 3 million tonnes/year of polyethylene and is expected to start production in 2024
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The risk of further increases in energy costs is an important issue affecting chemical supply chains
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Escalating tensions have already driven crude prices to seven-year highs, while natural gas prices soar further, and chemical companies will struggle to pass on higher costs and risk shrinking profit margins
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Market worries about global fertilizer shortage

The Ukrainian crisis could have a wide-ranging impact on the supply of fertilizers to the global market
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Russia is one of the most important fertilizer and sulfur suppliers in the world
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Russia is the world's largest exporter of nitrogen fertilizers in 2021
.
At present, Russian nitrogen fertilizer products are especially important to European buyers, as the supply of spring fertilizer is still low after several European nitrogen fertilizer plants have been forced to stop production for a long time due to high natural gas prices
.

Russia is a large potash fertilizer producer and the third largest potash fertilizer exporter, with an export volume of 11.
83 million tons of potassium chloride in 2021
.

Russia is also a major exporter when it comes to phosphates, traditionally dominated by China and Morocco, with total DAP/DAP shipments of 4 million tonnes last year
.

In addition, Russia is also a major exporter of sulphur, with monthly exports reaching US$2 billion at current prices
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Major markets for Russian fertilizers and related raw materials include Brazil, the European Union and the United States
.

With escalating tensions between Russia and Ukraine, the market has heightened fears of a global fertilizer shortage.
The resulting increase in fertilizer prices will reduce the use of fertilizers, which could lead to lower crop yields and push up global food prices.

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