Chemicals Market Outlook 2022

A view on the chemicals market by Arnaud Backbier, Royal Smit & Zoon`s Global Commercial Director

If one thing is clear since the fourth quarter of 2021 it is that chemicals availability and pricing are not improving and are not expected to improve before Q3 of 2022. Depending on the individual origin or production value chain of a chemical, the prices may stabilize or go up further. The availability is also highly variable, again different by chemical. The overall reasons for high cost or increasing costs are oil prices, disruptions of supply chains, logistic and energy cost, high demand from other usages, disappointing harvests (in case of natural oils), and individual value chains of chemical raw materials.

Why oil prices have increased?

The oil prices, which are the fundament for the petrochemical raw materials, have gone up tremendously and refineries are usually run first of all for the production of fuels. Although OPEC (Organization of the Petroleum Exporting Countries) has promised to increase production, it might well be that the OPEC countries enjoy the high prices to ensure a good income, and the US fracking production capacity needs time to ramp up after major reductions in the last years. Political tensions around the world further negatively impact this situation.

The most important reason for derivates of standard petrochemicals (like ethylene and propylene that are produced from crude oil) not following the trend of these, is the supply and demand situation. In the last months/year everything was different because of the total disruption of supply chains and many major forces as a result. Many raw materials that were quite good predictable in the past by following the petrochemicals were out of control in 2021, for example, Butyl glycol that followed ethylene and Acrylic acid/acrylates that followed the same trend as propylene. Currently, the low availability and high demand drive the price.

Next to that logistics and – especially in Europe – energy prices have increased and see no sign of abating. The logistics costs impact often indirectly, as many leather chemicals are made from raw materials which by itself have global supply chains behind them. The energy prices also have a variable impact depending on the production process of a specific chemical, but chemical production requires substantial energy. For sea logistics, the prediction is that it will not improve earlier than Q1 2023, but even that may be optimistic. For energy prices, no outlook can be given currently.

The impact of COVID-19

Leather chemicals often use raw materials that are also used for other usages such as personal care or construction. The impact is explained here with two examples. The continuing COVID-19 crisis has pushed up the use of personal care products. The production capacity of such ingredients is not easily increased due to the high investment cost and the long duration to build and start up capacity. Again the supply is limited and the global demand has in some cases increased by 20% to 30%, which can be seen indirectly by the handsome profits by personal care companies. A similar impact can be seen for polyurethanes which have many usages and especially in the construction industry which is driving up the demand whereas the supply has not improved much.

We have seen that the harvests of the crops for natural oils were disappointed in the last two years. This means that supply is short of the global demand. This pushes both prices and availability problems up. Although the expectations of the new harvest are better, it will take a while before we will see the prices come down again.

The availability of raw materials

A number of chemical raw materials have specific reasons that amplify the cost and availability. An example is a phenol. The production of phenol is linked to benzene, with acetone as a co-product. If the phenol producers cannot sell their acetone they will have to reduce their production levels and thus reduce the supply of phenol which then pushes prices up. This occurs more often but now amplifies the other factors. Many raw materials for leather chemicals have complex supply chains, so examples are used to illustrate which is potentially different for each raw material.

All in all the outlook for leather chemicals both in terms of cost as well as availability is predicted not to improve or might even further deteriorate overall or continue to vary from chemical to chemical.