U.S. withdrawal of Iran nuclear agreement Global chemical injury
The exit of the United States from the Iranian nuclear agreement has resulted in an increase in global oil prices, which is detrimental to the development of the petrochemical industry.
Due to concerns about the escalation of the conflict in the Middle East and the reduction of Iran’s oil supply, Brent crude oil futures prices have been pushed up to US$80/barrel from around US$65 in March this year. Normally, naphtha prices are closely related to crude oil prices, and as crude oil prices rise, naphtha prices will also start to rise. This will increase the cost of ethylene production from petrochemical producers that use naphtha as feedstocks, mainly in Europe and some Asian crackers, and their profits will decline, which will be detrimental to the balanced development of the global chemical industry.
For the petrochemical industry in the United States, this is not necessarily a good thing. At the beginning, the United States had attracted many investments with its abundant and cheap shale gas advantages, and successively established ethylene and related derivative projects in the United States. The global oil and gas market prices have risen. For these new petrochemical plants in the United States, the project's profitability and return on investment will also decline. In the long run, this is not conducive to attracting investment in the industry.
Jim Fitterling, chief operating officer of Dow Materials Science Division, said: “At present, global GDP growth rate is above 3%, and our plastics industry has a growth rate of over 4.5%. This level of demand growth requires annual construction and investment. Five sets of world-scale ethylene plants, and in the next three years, only three ethylene units will be put into operation."
Oil prices may continue to rise under the sanctions, which will lead to a reduction in demand for petrochemical products. Paul Hodges, chairman of the consulting firm International eChem, believes that oil prices will return to the past. Therefore, the performance of the global petrochemical industry in terms of product output and profits will be disappointing in the second half of this year. He added: “In the case of petrochemicals and polymers, this means that today’s global supply chain is being seriously threatened. This is bad news for the ongoing petrochemical expansion project in the United States because of their business model. It is assumed that the new factory is located near the source of superior raw materials, and then the products are easily exported around the world.”
The Iranian petrochemical project will also be directly involved. Iran is currently building a large number of chemical production projects with different progress. Due to lack of international funding and technology, many projects have been postponed. Despite the fact that some international giants have resumed contact with the Iranian side, there have been very few major deals that really provided funding or technical expertise for Iranian chemical projects. Paul Harnick, KPMG's head of global chemicals, said: "Actually, the U.S. sanctions have never been completely interrupted, so many global chemical giants have not been able to return to invest in Iran. The pair is waiting for Western chemical companies to help them upgrade their production facilities. The Iranian petrochemical industry is not good news."
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