The raw material game: part II
The outlook for 2022 was more confident again for the bulk of coatings manufacturers after it had been thought that the Covid-19 pandemic had been overcome and that the worst was over. However, the war in Ukraine has turned the fragile global recovery on its head, triggered a devastating humanitarian crisis, driven up food and commodity prices, slowed global growth, and exacerbated inflationary pressures around the world. From one day to the next, Ukraine – a reliable raw materials supplier of important basic chemicals such as ammonia, titanium ore (ilmenite) and sulphuric acid – was gone, and that further aggravated the raw materials situation in the global coatings and chemicals industry. Ammonia’s importance to the coatings and raw materials industry should not be underestimated, as it is used to produce urea, nitric acid, hydroxylamines, amines, hydrazine and nitriles – all of which are also major precursors for coatings raw materials. In addition, ammonia, the basis of nitrogen products, is directly dependent on natural gas for its manufacture. Already, initial price increases for nitrogen products of more than 40 percent have been reported. In addition, the situation is being made worse by numerous global force majeures that have been declared on basic chemicals. For example, in March 2022, BASF Petronas Chemicals (BPC) announced force majeure for shipments of its acrylic acid and acrylic esters from its production facilities in Gebeng, Kuantan, Malaysia. In May 2022, Celanese Corporation declared force majeure for all its acetyl chain and acetate tow products in the Americas and EMEA regions. This affected vinyl acetate (VAM), ethyl acetate, acetic anhydride, and subsequently cellulose acetate and various emulsions of these chemicals. It probably stemmed from the reduced availability of acetic acid, which is the essential precursor for all these basic chemicals. Shortages of methanol, a precursor for acetic acid production, are also conceivable.
In addition, the war in Ukraine has further increased the pressure on supply chains. So far, it has led to a shortage of some 100,000 Ukrainian and Russian truck drivers in Europe. Added to which, cargo airlines are having to accept longer routes because Russian airspace has been closed, a fact which has led to extremely high cost increases. To blame everything on the war in Ukraine alone is to see things too simply, however. The situation was exacerbated by the strict “zero-Covid strategy” and numerous lockdown measures, and shows just how dependent the chemicals industry now is on China. The result was the weeks-long closure of the world’s largest seaport, which is in Shanghai and through which more than twenty percent of Chinese exports are shipped, as well as the shutdown of countless foreign and domestic factories. The combination of war in Ukraine and supply chain problems from China contributed to a significant collapse in industrial production. The watershed proclaimed in political circles in Western countries is currently leading to a fundamental rethink within most companies in the coatings and chemicals industries. Nothing will ever be the same again. We in the chemicals industry find ourselves in a phase of utter upheaval. Companies should review their current business models as quickly as possible and develop new strategies. The upheaval is being intensified by the European Green Deal, the first step of which seeks to reduce greenhouse gas emissions by at least 55 % by 2030 compared with 1990 levels. The second is to reduce net greenhouse gas emissions to zero by 2050 and further promote the circular economy in Europe. If these goals are to be achieved, most companies in European industry will have to transition their solvent-based product portfolios to eco-friendly paint technologies and coating processes within a short period of time and forge ahead with the increased use of renewable energies. The coatings and chemicals industry faces very significant challenges, but these are necessary for the survival and growth of the industry.
You can read the full version of this article in the September issue of the European Coatings Journal.
Transportation capacity for non-chemical products by rail on the Silk Road has been shifted to ships due to the risk of blockading by Russia. This will take away capacity from sea containers for basic liquid chemicals, which are not allowed to be transported by rail on the Silk Road. Shipping carries ninety percent of world trade and is responsible for about 3 % of global CO2 emissions. In 2021, a total of 5,434 container ships were engaged in international maritime trade. The cost of ocean freight is expected to keep rising in the coming years, as the International Maritime Organisation agreed in June 2021 to new watered-down regulations aimed at cutting carbon emissions by eleven percent between 2023 and 2026. From 2023 on, all ships engaged in international trade will be placed in different categories and will have to apply for an international energy efficiency certificate (Carbon Intensity Indicator) at the time of their first survey. The purpose of this is to raise the pressure on shipping companies to use efficient ships only. Older ships will have to undergo costly retrofitting. Otherwise, they will only be permitted to operate at lower speeds, so as to reduce CO2 emissions. By way of incentive, the ships with the lowest emissions will pay lower port fees. These measures will inevitably raise logistics costs even further. In addition, inland shipping in Europe has been somewhat curtailed by the recent heat wave, as water levels have fallen more sharply this summer. Some freighters are only able to carry half their usual loads. The Rhine is an important lifeline for the German chemicals industry situated along its banks. Chemical and industrial companies have therefore already started switching to rail and truck capacity. This will possibly give rise to further shortages / cost increases relating to transport capacity.
In addition, the war in Ukraine has further increased the pressure on supply chains. So far, it has led to a shortage of some 100,000 Ukrainian and Russian truck drivers in Europe. Added to which, cargo airlines are having to accept longer routes because Russian airspace has been closed, a fact which has led to extremely high cost increases. To blame everything on the war in Ukraine alone is to see things too simply, however. The situation was exacerbated by the strict “zero-Covid strategy” and numerous lockdown measures, and shows just how dependent the chemicals industry now is on China. The result was the weeks-long closure of the world’s largest seaport, which is in Shanghai and through which more than twenty percent of Chinese exports are shipped, as well as the shutdown of countless foreign and domestic factories. The combination of war in Ukraine and supply chain problems from China contributed to a significant collapse in industrial production. The watershed proclaimed in political circles in Western countries is currently leading to a fundamental rethink within most companies in the coatings and chemicals industries. Nothing will ever be the same again. We in the chemicals industry find ourselves in a phase of utter upheaval. Companies should review their current business models as quickly as possible and develop new strategies. The upheaval is being intensified by the European Green Deal, the first step of which seeks to reduce greenhouse gas emissions by at least 55 % by 2030 compared with 1990 levels. The second is to reduce net greenhouse gas emissions to zero by 2050 and further promote the circular economy in Europe. If these goals are to be achieved, most companies in European industry will have to transition their solvent-based product portfolios to eco-friendly paint technologies and coating processes within a short period of time and forge ahead with the increased use of renewable energies. The coatings and chemicals industry faces very significant challenges, but these are necessary for the survival and growth of the industry.
You can read the full version of this article in the September issue of the European Coatings Journal.
Logistics
Before the outbreak of the Covid-19 pandemic, distance and transportation were not an issue when it came to building up global supply chains. They were an integral part of many companies in the coatings and chemicals industries in Europe. In the current situation, these companies need to realign their raw materials strategy for the future. Severely congested transportation facilities for air cargo and sea containers as well as delivery delays caused by government-imposed lockdowns in China led to a further increase in transportation tariffs in 2022. As a result of the enormous cost of energy and fuel, increases in freight costs of 30-45 % have been announced for ocean freight shipping in the third quarter of 2022. In addition, climate change is expected to increase the likelihood of extreme weather-related disruptions to global supply chains.Transportation capacity for non-chemical products by rail on the Silk Road has been shifted to ships due to the risk of blockading by Russia. This will take away capacity from sea containers for basic liquid chemicals, which are not allowed to be transported by rail on the Silk Road. Shipping carries ninety percent of world trade and is responsible for about 3 % of global CO2 emissions. In 2021, a total of 5,434 container ships were engaged in international maritime trade. The cost of ocean freight is expected to keep rising in the coming years, as the International Maritime Organisation agreed in June 2021 to new watered-down regulations aimed at cutting carbon emissions by eleven percent between 2023 and 2026. From 2023 on, all ships engaged in international trade will be placed in different categories and will have to apply for an international energy efficiency certificate (Carbon Intensity Indicator) at the time of their first survey. The purpose of this is to raise the pressure on shipping companies to use efficient ships only. Older ships will have to undergo costly retrofitting. Otherwise, they will only be permitted to operate at lower speeds, so as to reduce CO2 emissions. By way of incentive, the ships with the lowest emissions will pay lower port fees. These measures will inevitably raise logistics costs even further. In addition, inland shipping in Europe has been somewhat curtailed by the recent heat wave, as water levels have fallen more sharply this summer. Some freighters are only able to carry half their usual loads. The Rhine is an important lifeline for the German chemicals industry situated along its banks. Chemical and industrial companies have therefore already started switching to rail and truck capacity. This will possibly give rise to further shortages / cost increases relating to transport capacity.