“The coronavirus pandemic struck at a time when the sector was already in decline. Adapting to the new normal will necessitate management agendas that take into account the lessons learnt in the first half of 2020.”

COVID-19 is forcing petrochemical executives to reconsider the industry's future. Slowing demand growth, rising surpluses, and a diminishing value pool were all evident prior to the epidemic, and they've only gotten worse. Furthermore, the transition to renewable energy resources and a regenerative, or circular, economy will cause fundamental change in the business.

Growth has been halted

Following the financial crisis of 2008, the petrochemical industry saw sustained, significant development from 2010 to 2018, with the value pool increasing by 8% per year. From 2016 to 2018, a so-called super cycle (a period when petrochemical profits are larger than typical) resulted from high utilization and favorable feedstock dynamics.

In general, the marginal producers are determined by industry utilization (usually at the product-chain level), and the price of oil dictates the steepness of the cost curve in many product chains.

The industry value pool fell in 2019 due to major capacity increases and slower demand growth. The COVID-19 pandemic, which began in 2020, has hastened this demise. The impact of the coronavirus on petrochemical demand was uneven throughout value chains, with sharp drops in automotive and construction applications, but strong demand for packaging (notably in food, sanitary products, and medical applications). Stockpiling, a boom in delivery services, and increased healthcare-focused activity are all reasons for the latter, all in response to the epidemic.

Despite a few plants closing down in specific regions, industry participants have weathered the storm in the short term and are now looking ahead to the longer term.

Read More :- https://www.pukkapartners.com/insight/petrochemical-industry-how-decision-makers-are-coping-with-the-impact-of-covid-19

Both supply and demand are exerting pressure

The petrochemical sector is experiencing overcapacity in comparison to demand, which is negatively impacting the operating rates of many base petrochemicals. This can be traced back to the last investment cycle, which lasted from 2014 to 2019/20. The shale gas revolution helped the business become globally competitive in the early 2010s. As low-cost makers of ethylene and PE, many companies built expanded capacity to export to increasing international markets. Because of the low cost of indigenous shale gas, 340 petrochemical projects worth a total of US$204 billion were built.

Between 2014 and 2019, new ethylene production capacity increased by 35%. 22 However, this additional capacity is greater than the market can absorb, causing ethylene prices to fall from $739 per metric tonne in 2017 to $347 per metric tonne in July 2020. 23 Furthermore, with the implementation of COTC technology, oversupply could worsen in 2020 and beyond, particularly for heavier base chemicals.

With the support of digital technologies, the sector may respond to oversupply and the accompanying margin pressure by focusing efforts on improving process efficiencies and cost savings across the value chain. Increasing downstream synergies can also be sought through bolt-on acquisitions by integrated oil and gas and commodity chemical businesses expanding more into the specialty chemicals industry to weather the slump.

Taking advantage of the next growth spurt

As the petrochemical sector progresses, the rate of rapid change is only anticipated to accelerate. Changing paradigms as a result of changing economic, social, environmental, and innovation expectations have the potential to reshape the industry landscape. Companies should consider implementing a series of targeted, strategic initiatives across important functional areas such as R&D, talent, and technology in order to survive in the future. Companies that focus on the short term may overlook long-term opportunities, such as investing in innovation, emerging applications, and adopting new business models that provide long-term growth.



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