The global chemical industry is under increasing cost pressure
2021-07-15
Pressure on the market for chemicals has been building in recent weeks. On the one hand, international oil prices are rising faster and faster. On the other hand, the shipping pricing of global shipping companies is also increasing significantly, and the cost pressure of chemical enterprises due to freight costs is also rising, which further increases the cost pressure of the globalized industry.
International oil prices have risen significantly
Since June 1, when Brent crude futures closed above $70 a barrel for the first time in two years, international oil prices have risen above that level and have continued to rise. As of June 16, Brent crude stood at $74.27 / BBL, its highest level since April 2019. WTI crude traded at $72.44 / BBL, holding its highest level since October 2018.
In such a market situation, the market for the future of international oil prices more optimistic. Recently, executives from big oil trading houses such as Vitol, Glencore and Trafigura have all said $100 a barrel is a possibility. Goldman Sachs has been forecasting since March that Brent crude would hit $80 a barrel this summer.
Jeremy Weir, executive chairman of Trafigura, said oil prices had room to rise. The world is not yet ready for the full roll-out of clean energy and electrification, which underlies oil demand. But with factors like carbon neutrality, the supply situation is tighter, which obviously pushes up prices. Alex Sanna, an oil trader at Glencore, also said a $100-a-barrel oil price was increasingly likely. "If you cut supply without addressing demand, that could lead to price disruption."
Transportation costs increase the degree of adjustment
The international oil price directly affects the production cost of chemical enterprises. The international shipping rate also directly affects the operating cost of chemical enterprises. Since this year, due to the economic recovery, the global logistics pressure has increased sharply, causing a series of problems. Due to limited shipping space and containers, many products have to be backloaded at ports, reducing efficiency and further lengthening delivery cycles. Even if they make it, shipping rates are rising due to factors such as congestion at ports.
Recently, a number of international shipping companies, such as Herberot, MSC and Kamihara, announced that they will raise their fees from the middle of June. Among them, Herberot announced a significant increase in shipping rates from Asia to North America from June 15, adding $2,400 for a 20-foot container and $3,000 for a 40-foot container. MSC said that starting July 1, Mediterranean Shipping will impose surcharges on all shipments destined for the United States and Canada. The price increases are $2,400 for a 20-foot container, $3,000 for a 40-foot container and $3,798 for a 45-foot container. It is also the largest single price increase in shipping history. Matson announced that the California Port Congestion Surcharge, effective July 15, is a $1,000 increase. Kamihara announced that due to the impact of the epidemic, Kamihara will increase all prepaid sea freight from Ningbo to Japan from July 1. The 20-foot container will be charged $100, and the 40-foot container will be charged $200. On some routes, such as those from Asia to North America, rates have risen by 1, 000 per cent.
For the chemical industry, the cost of shipping is directly related to the profit of the enterprise. And the current shipping market fluctuations and high shipping prices are nibbling at the profits of the international industry.
A variety of chemical products are affected
The chemical industry market is being affected by the sharp rise in crude oil and international shipping prices.
Global price increases for a variety of chemicals have eased somewhat since June, but with the recent rise in crude oil and shipping prices, some product prices have started to rise again, and a number of companies have further increased their product prices. On June 14, Lanxess announced a worldwide increase in the price of inorganic pigments by at least 150 euros per ton, or the equivalent in local currency. On June 11, Showa Denko said it would raise sales prices for polyvinyl chloride from July 1. On June 11th Mitsubishi Chemical Corporation announced price increases for ethylene oxide and derivatives from July 1st. Roma Chemical announced that from June 14, it will raise the sales price of PMMA in Europe and the Asia-Pacific region by more than 400 euros/ton.
In addition to organic chemicals, tire prices are also rising. Kumho Tire recently announced that it will raise tire prices in Japan by an average of about 3%, effective July 1, 2021. Earlier, Michelin, Pirelli, Bridgestone, Goodyear, Sumitomo Rubber, Hantai, Yuchaoma and other international tire giants have also announced price hike policies. In just two months, many manufacturers have raised their prices twice or even three times in a row, adding up to more than 10%. Most tire makers cited rising raw material prices, as well as logistics and labor costs.
