By Mohi Narayan and Joyce Lee
Global oil industry faces challenges as petrochemical sector weakens, impacting profits amid falling transportation fuel demand. Major producers in Asia and Europe resort to selling assets, closing plants, and retrofitting facilities to cut costs by using cheaper raw materials such as ethane. Oversupply of ethylene and propylene expected to persist for years, leading to consolidation in the industry. These basic raw materials are crucial for making plastics, industrial chemicals, and pharmaceuticals.
Consultancy Wood Mackenzie estimates that about 24% of global petrochemical capacity is at risk of permanent closure by 2028 due to weak margins. The current downturn is expected to last longer than usual, with Asia facing the toughest outlook. Asian propylene production margins are predicted to slide into the red this year, while Europe and the U.S. experience different profit margin forecasts.
Asian producers are exploring new markets such as India, Indonesia, and Vietnam to sell surplus supply. Japanese and South Korean companies are focusing on niche projects to boost margins by producing low-carbon and recyclable plastics. European consolidation is picking up, with companies like SABIC and Exxon Mobil announcing plans to shut down some plants due to high costs.
Overall, the petrochemical sector is facing challenges globally, with oversupply, weak margins, and changing market dynamics. Companies are adapting by exploring new markets, investing in niche projects, and consolidating operations to stay competitive in the industry.