Petrochemicals are made from oil and natural gas. This industry is focused on manufacturing basic chemicals, plastics and resins. The
What Challenges Might the Best Petrochemical Companies Face in the Future?
The petrochemicals industry is competitive with a large number of players involved in the manufacturing process of basic chemicals, plastics and resins. The competition is fueled by high capital expenditure (capex), which has resulted in mergers & acquisitions (M&A) taking place among players to gain market share globally. However, given that there are limited opportunities for M&A activities in this space, there are few opportunities for small companies to enter this sector.
● There are currently two main sources of feed stocks for the production of petrochemicals and their derivatives: Middle East (ME) and North America. In the case of ME, the evolution of the region's industry has been characterized by a long history of oil and gas production and export opportunities, which have also made it possible to supply feedstock for international industries in the region as well. The ME region is also home to some of the most competitive chemical producers in the world, which is good news for companies interested in entering new markets. On the other hand, North
industry is characterized by technological innovation, capital costs and operations in various countries around the world. While the petrochemical industry has been profitable over the past decade or so, it is facing some challenges that will affect its future. Among these challenges are a steady reduction of global oil reserves and increased environmental concerns arising from the use of fossil fuels. These factors have pushed the industry to focus on new technologies for refining raw materials as well as diversifying its product portfolio. These factors have also prompted the industry to make substantial investments in research and development (R&D) activities to meet the regulatory demands.
America currently holds the advantage when it comes to cost competitiveness, but this will not last forever—supply will begin to exceed the demand and prices will become too low to maintain existing producers. This means that there will be an opportunity in ME, but there will also be competition.
● The petrochemical industry is no stranger to fluctuating margins. A combination of rising demand, high operating rates and relatively low feedstock costs has led to some companies enjoying large profits in recent years. However, more recently, the margins for select petrochemical chains have been eroding at an alarming rate. This trend is most
● Chinese GDP figures are down, and while they're up in some areas, the chemicals market in China is not one of them. The chemicals market there is expected to slow down as a result of slower GDP growth in the country overall. There are a few reasons for the slowdown. First, the Chinese economy is shifting from heavy industry toward service- and consumer-based business. This shift will continue to reduce the demand for materials used in infrastructure and construction projects, which take up most of China's chemical production. As consumer spending slows, so will demand for chemicals from automobiles and other durable goods. It's also worth noting that though the Chinese government has been making an effort to decrease pollution by restricting chemical usage—such as limiting the use of certain materials in producing everyday products like shampoo or cleaning supplies—so far, this has had a limited impact on overall chemical demand.
notable in those chains that rely on the production of aromatic compounds such as polymers, plastics and solvents.
● It's been almost four years since the initial outbreak of the COVID-19 pandemic. In December 2020, the world experienced a sudden, global halt in nearly all forms of transportation, and all industrial processes that rely on machinery powered by fossil fuels ground to a halt. The world was thrown into panic and chaos, but shortly thereafter it became abundantly clear that the endemic had not only halted all aspects of daily life, but it had also begun to take lives at an alarming rate.
As predicted in a paper published by the World Trade Organization (WTO) before COVID-19 first appeared, the price of crude oil skyrocketed as a result of this disease, and so did most other petrochemical products.
In fact, I'd like to revisit some of the predictions mentioned in another blog we published earlier today:
The problem can be traced back to the rising demand for these products and the high operating rates across several regions. Specifically, this has resulted in huge margins when compared to those of other industries or sectors. This is because while oil prices have remained low over the past few years, the cost of feedstock has also fallen, meaning that companies are able to keep their prices high without fear of losing customers to competitors. Therefore, many firms are choosing not to pass on these benefits by lowering their prices for consumers. As a result, parity with other industries has been lost and many businesses are struggling to make ends meet.
● While some of the most popular petroleum products, including gasoline and diesel, have seen their prices change by more than 70 percent since 2014, the price of crude oil has fluctuated dramatically as well. In fact, in just one year, the price of crude oil has changed from $108 to $36 per barrel. This dramatic change that has happened in just a few years has led to uncertainty in both the upstream and downstream investments in petrochemical markets.
“What's more is that due to massive travel restrictions and lower number of international flights, aviation fuel prices are expected to rise by around 50%.
Of course, price hikes aren't just limited to oil. This pandemic has a far-reaching impact that affects nearly every industry and every country."