We noted in today's daily report the number of shutdowns that are taking place in Asia and in Europe as feedstock costs become unmanageable, and the assumption is that these units will restart when economics recover. This may not be the case as companies factor in the costs of operating smaller units in an emission-constrained world, and the decision to shut down for economic reasons today may be the final nail in the coffin for some older and generally less economic base chemical units. Many smaller facilities in China were built in the 80s and 90s and these might not come back online if there is no easy way to lower emissions, but the harder decisions will likely be in Europe.
Source: Bloomberg, C-MACC Analysis, March 2022
The economics of making base chemicals in central Germany and parts of France and Italy were already challenging before feedstock costs rose, and these are countries with not only a significant focus on emissions but also a high and rising carbon price. If you are running a naphtha-based ethylene unit you may have as much as 4 tons of carbon per ton of polyethylene – and today that adds €320-350 per ton to nominal costs per ton of polymer. The added problem in Europe is how hard it is to lay people off, and consequently, chemical companies may operate at negative margins for a while before they make any decisions. We do not believe that there are economic decarbonizing options for many of the European base chemical units so it is a case of when rather than if for many of these facilities.
