WPC 2025: Dow CEO Fitterling and S&P Global's Eramo on the state of the industry

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Jim Fitterling:

The driver here is sustained below 3% global GDP, and so the U.S doesn't have 3% GDP and China's really dropped down from the heady days when it was running at 8%.

Vincent Valk:

Hi, and welcome to the Chemical Week podcast. I'm Vincent Valk. The industry gathered in Houston during the week of March 17th for the 40th annual World Petrochemical Conference and Chemical Week's Editor-in-Chief Rob Westervelt recorded interviews with key leaders at the conference. In today's episode, we bring you two of those interviews. First up is Dow CEO, Jim Fitterling, with a discussion focused on the market outlook for pet chems, the state of circular economy initiatives in light of geopolitical changes, and an update on the company's net-zero cracker in Alberta. After that, we'll hear from S&P Global Commodity Insights Co-President Mark Eramo with some thoughts on the industry's past and its future.

Rob Westervelt:

Welcome to Chemical Week TV, coming to you from the World Petrochemical Conference in Houston. I'm Rob Westervelt, Editor of Chemical Week. Delighted to be joined by Jim Fitterling. Jim, thank you for joining us.

Jim Fitterling:

Great to be here, Rob.

Rob Westervelt:

So with what you're seeing out there in the markets, particularly polyethylene, what are you seeing across your markets in 2025 so far?

Jim Fitterling:

Yeah, a bit of a two-speed economy right now. Services sector, electronics, semiconductors, things related to the power and utilities industry, good, even automotive I'd say is still holding up relatively well. Fast-moving consumer goods holding up well, slower when you get to things like housing, housing in Europe, China, United States, similar patterns, high interest rates and inflation, put pressure on that. And then that drives a lot of knock on demand for materials that go into homes, whether you're remodeling or building new appliances and some of the things that you buy when you build a home. Polyethylene is relatively resilient through peaks and troughs. So we're seeing good volume patterns, good volume demand. I think there's a bit of a look at the overhang on capacity that's out there.

In Europe, I would say that overhang is because you've seen a bit of deindustrialization, higher energy costs in Europe. Europe's move to the most expensive place to crack and it's all mostly liquids cracking. And so that's really put pressure on Europe and I'd say a lot of the focus areas is on right sizing, rationalizing. And China, similarly, a lot of capacity has been built and China's at pretty low growth rates relative to the previous history. And so I think we're having to look at what's the rate of growth in China and when do we think this is going to turn and we'll see the run-up to the next up cycle.

Rob Westervelt:

Has the two-speed nature of this trough surprised you? Is that typical at this point in the cycle and when do you think it will turn?

Jim Fitterling:

A typical trough would last 24 months. Three years is a relatively long trough. If you look in history since the seventies, we've only had four periods where we've had this long a trough and the driver here is sustained below 3% global GDP. And so the US doesn't have 3% GDP and China's really dropped down from the heady days when it was running at 8% types of numbers. And Europe and some of the more major economies are 1% or below, if it's not negative at some point. So that's been the big issue. I'd say there's still bright spots, but in any of these troughs you have to get through focusing on your cost position and bringing things in line before you get to the next peak.

Rob Westervelt:

Tell me about Dow's view on the drive toward a circular economy model. Given the geopolitical turmoil where we are in the cycle, are customers rethinking this? Is Dow rethinking this? Do you think that circularity continues to accelerate at the recent...

Jim Fitterling:

The desire is there. If you look at the brand owners and they look at their customers, which are all of us, the desire and the demand is there. So people, they want to see an address to circularity, they also want to see an address to the plastic waste issue. So I think that is there. It's the same question on the energy side, which is at any cost, and I think when you're in the trough and you've got virgin resin prices as low as they are, that at any cost becomes the key issue. You have to have some policy support. You're trying to change a massive existing ecosystem, which is, make it, throw it away or in this case, make it, put it in a recycle bin, sort it out, and then recycle it and then open up new forms of recycling like advanced recycling to add to the mechanical recycling.

And advanced recycling is going to be the key that actually allows more products to be recycled because you can convert it into a much higher quality material. So you think about packages going back into packaging, a hundred percent recyclable, you're not going to be able to do that without advanced recycling.

Rob Westervelt:

Yeah. And what about the UN plastics treaty? Can that get back on track and what has to happen there and can that help drive this?

Jim Fitterling:

I think it can. We obviously had a setback at the end of the year in Korea, and I would say a big part of that was the United States had a diminished role in that part of the treaty and the US State Department had been doing a masterful job of trying to bridge all these competing factions to help land this in a place where we could get a treaty and get started. And then there was a massive overreach at the end of the year and what happened was it really set the whole process back. I think we've got one more chance coming in Geneva in July and if we can get the state department back at the table and really bringing the coalition back together. We had a very good, I'd say balanced position to move forward from and had a lot of support, industry, the whole value chain, NGOs as well as governments. We got to get back to that spot quickly. If we miss it, then I'm afraid we've lost a lot of progress.

Rob Westervelt:

And [inaudible 00:06:54] about around decarbonization and how that is progressing. Did our market-based decarbonization and carbon [inaudible 00:07:07] still possible? I mean, what's the environment like now? What's Dow's perspective and how are you viewing this as you carry out your net zero crack on Canada, you look at other sites, how do you see this playing out?

Jim Fitterling:

I think they are. We've actually got customers signing deals right now to be able to take offtake that has zero carbon emissions. So ethylene was zero carbon emissions, and when we get to the Canadian project, that's going to be three and a half million tons total from that site of ethylene with zero Scope 1 and 2 emissions. Customers are willing to do that. Customers are willing to pay a value for that. And I think when we're doing it with circular hydrogen or blue hydrogen, it's cost-competitive as opposed to say green hydrogen, which is very prohibitive. So I think it's back to the comment I made on plastics, which is not at any cost. You have to be in the ballpark on costs, but there is a demand out there, and I liken it to this, we know climate change is happening. We are not sure that we can a hundred percent control climate change, but I think everyone knows that if we reduce CO2 emissions, we have the best shot at having an impact.

And so there's a desire out there for people to look at whether it's AI data center who is saying, I want electricity to power it, but I want it to be low carbon or no carbon emissions, or if it's a consumer brand, they're both playing into that market. And that market is all of us, the voters, and long term I think, voters are going to continue to say, we want to move down the path of being as environmentally friendly as we can be.

Rob Westervelt:

Has customer urgency around this waned at all? Are you still seeing that level of interest?

Jim Fitterling:

Yeah, still seeing good interest. When we signed the first deal, obviously that generated a lot of interest, so people started to look at that deal and say, "How do I participate?" We'd been relatively quiet about that, but I think you're going to see it continue to pick up.

Rob Westervelt:

More broadly around energy transition. Given I guess, a more practical view on what the timeline that is achievable, how does that impact Dow's strategy going forward and what's your view on how energy transition will play out around all the themes we've discussed, circularity, decarbonization?

Jim Fitterling:

Yeah. I think last week at CERAWeek there was a lot of discussion about this. Natural gas is going to be a clear bridge fuel, and I think the role of it is front and center with the electricity needs that we have. Before you get into data centers and AI, almost every grid in the United States, but not just the United States, around the world is under stress because we're driving higher electricity needs and we haven't added baseload capacity. We've added a lot of alternatives, solar and wind, but they're only good and they're only dispatchable about 20, 25% of the time.

To manage peak demands, which is what these utilities have to do to keep your lights on or to keep you warm in the winter or to keep you cool in the summer, and that's what drives that peak demand. They've got to have 90-plus percent availability, and that means coal, which everybody has moved away from, natural gas without abatement or long-term, natural gas with CO2 abatement or nuclear, whether it's large scale or small modular reactors. I think that trend is going to happen. I think it's going to take much longer than people had anticipated. Natural gas is going to be a clear winner in the near term.

Rob Westervelt:

And what's your view on small modular nuclear area? Talk about it. At Seadrift, how's that progressing?

Jim Fitterling:

Our effort with X-energy is in the engineering phase right now where we're getting close to the filing for the construction permit, but in the engineering phase, what we're working with X-energy to do is bring our project management and engineering expertise in to work through how to fabricate and construct the reactor parts that will then come on site. So bring our supply chains to bear, bring the fabricators to bear, try to do this in the most cost effective manner and to do it in a way so we can target a dollars per megawatt hour of installed capacity that's similar to combined cycle gas with some type of CO2 abatement. If we can do that, I think we've got a long-term winner.

Rob Westervelt:

Welcome to Chem Week TV, coming to you live from the 40th World Petrochemical Conference in Houston. Across the week we'll be talking to industry leaders, CEOs, and thought leaders about how the industry is navigating through it, some tough market conditions, ongoing geopolitical and tariff pressures, and of course the continued drive for sustainability and circularity. And I'm delighted to be joined by Mark Eramo, Co-President of S&P Global Commodity Insights. Mark, thanks for joining us.

Mark Eramo:

Glad to be here, Rob, look forward to the conversation.

Rob Westervelt:

As I mentioned, 40th anniversary, big milestone. Let's start with a bit of a look back. As you look back across your career, what stands out about the industry shifts over the last 40 years, 20 years, however you want to look at it?

Mark Eramo:

Sure. By coincidence, this is my 40th year also in the industry starting with a leveraged buyout company called Vista Chemical here in Texas in 1985. And you think about world scale back then on a steam cracker was 450, 500,000 tons, and today it's measured in millions of tons. You could build that cracker back then for four or $500 million. Today, it's billions of dollars. And there's all kinds of contrast. Maybe one of the most significant things, the centers of industry sat in North America and West Europe and China was this place that was far away, very little chemical capacity, and that's where you sold your surplus material to. And wow, what a difference 40 years makes. But in the case of China, as you know Rob, that's really been an acceleration in the last, what, 15 years where now it's the largest country in the world producing petrochemicals and still importing product, but no longer a dumping ground, a major player in the petrochemical industry.

Rob Westervelt:

Let's talk about China. Obviously as we navigate an uncertain environment, a key part of that is oversupply. China's drive for self-sufficiency. How is China's continued capacity surge, what impact does that have on the market and how long is it going to take to work this off?

Mark Eramo:

So the capacity surge in China that really started around 2019, 2020 had a couple of different effects, and I want to be clear, it wasn't just China, but they were a major player. So some very large scale assets that came on stream starting in the late 2019 time period, really, [inaudible 00:14:37] was kind of the first one over the edge in terms of having to tip over as lower operating rates, and then numerous assets were coming on stream. The big implication was scale. These assets integrated with refining in many of the cases and bringing scale that maybe the industry hadn't seen before and certainly not as much capacity in different markets that the industry had ever seen before in a very short period of time. In short period of time is relative because that expansion across the world, not just China, really continue through '23 and maybe even into 2024.

How long it takes to work off is the topic of another discussion around here at WPC. Some questions about just how strong really is demand growth. I mean, global GDP looks like it's reasonable, so you would expect that the demand growth from a petrochemical standpoint is still pretty good, but it really speaks to the amount of surplus capacity that we have. The fact that we've been in this downturn in some of these markets since 2020, 2021, anybody's guess end of '26, early '27 before we really start to come out of it. And it's going to take both idling and maybe shutting down capacity and sustained continued growth of the global economy to get us out of this.

Rob Westervelt:

What's the path forward for Europe? Obviously, they're dealing with the oversupply, the Russian-Ukraine war has been a huge issue that's just inflated their energy costs, where can and should Europe compete going forward?

Mark Eramo:

Yeah, Europe is challenged and maybe I'm being kind there. A fundamental dynamic of longevity in the petrochemical industry is again, as you know well, is competitiveness and with the onslaught of the Russian-Ukraine war, the issues around energy costs, the push for green energy that has higher costs than hydrocarbons, mean a myriad of factors that are underway. And we could pick on regulatory side, policy side, the whole climate area energy transition, but leave all that aside, at the end of the day, the energy structure in Europe has left its downstream industries, I'll say refining and chemicals in a noncompetitive position. That's a dangerous place to be in a market that is oversupplied. You got high crude oil prices which push the price of goods higher, high crude oil prices, if I'm not the base, it makes my cost even higher, a high energy cost. It says I'm now noncompetitive to be able to compete globally in the world in basic commodity chemicals and plastics and derivatives.

And so yeah, Europe has a major challenge here. I think we've seen the early discussions around shutdowns. People are asking, will those be permanent? Will those be put up for sale and somebody comes in and tries to mix the assets and do something different? I mean, all that's to be seen, but what we have is Europe on the high end of the cost curve and that's going to be challenging for them to have some longevity. Add on to that, I'm running in a high-crude oil environment, a high-cost asset, higher energy, and now I'm being asked to invest in capital that makes it more sustainable, lower carbon that doesn't necessarily have an immediate return on it. And that may tip the scales to say, I'm out, right? I'm going to go focus on other parts of the world if I can, if I'm an owner of that asset and say I'm going to let this one go, then I'm going to go either to China, to North America, maybe the Middle East, possibly Latin America. I've got other options than continuing to hang onto that asset in Europe.

Rob Westervelt:

Let's bring it to the Americas. In the U.S specifically, you mentioned energy transition, the continued push for decarbonization. You're at CERAWeek as well, last week. With the shift in mindset around energy transition, what's achievable within a certain time around decarbonization, how does that affect or not affect the U.S.'s relative cost position in the U.S? Is the U.S show advantage durable?

Mark Eramo:

Yeah. So let's tackle the energy transition one first and then we'll back it up into energy and what that means from a competitor standpoint. So if I think about energy transition, if I think about what I call the climate era, what's coming out of the new administration is clearly a much more pragmatic approach to the whole issue now, and maybe that's being too kind. I mean, the administration is pulled out of the Paris Accord and we'll see what happens on the IRA that was really incentivizing a lot of investment in low-carbon capabilities. So I think the best way to describe it is the pivot in the U.S is to one of a very pragmatic approach, an approach that says is the market and the technology and the policy and the consumer. So all those things aligned on whatever product it is that I'm making, that would wind up being a lower carbon-based product.

Is everything aligned there to say, I can make this investment because there's going to be a demand pull? I can make this investment because the technology's there. Can I make this investment because the market is asking for it and is willing to pay for it? I mean, that becomes the key dynamic that needs to be in place. And whether it's the U.S or Europe or someplace else in the world, if those dynamics are there, then we're kind of popping up technology, that I'll pick on green hydrogen, and we're popping up technology that may not be ready at this point in time. It doesn't mean it may not happen in the future. It does not mean that green hydrogen might be the perfect solution for some hard-to-abate corner of the world or application or whatever the case might be.

But it means at this point in time, it's those things where all of those things line up that I'm going to make the investment because I have a responsibility to my shareholders. Whether I'm private or public, I have a responsibility to get a return. I'm still going to be a responsible operator. I'm still going to focus on sustainability, but I'm going to do it at a pace and under a situation where the projects stand on their own.

Rob Westervelt:

And how does that play out? I mean, how long does it take for those incentives to align? Are you sensing a shift in mindset here?

Mark Eramo:

There is a shift in mindset, and I would say in certain areas those incentives are aligned. Well, I'll throw out the simple example of green polyethylene in Brazil. As I understand it, we're getting a premium for that polymer that's based on sugar cane. Some would say that that technology was a little bit before its time. It took more than a decade, I think, to get to this point to where you can actually command a premium. So the technologies in many cases are there. So it really is more of a policy and a market framework that [inaudible 00:22:13]. If the company is committed to low carbon, I mean, then there's obviously good examples of companies that are moving forward with viable technologies that can help them achieve the goal. Dow Chemical in Alberta is the perfect example. A series of existing technologies that will allow them to expand the fort, get it to net zero, in the end, have a lower carbon intensity product that they could offer the marketplace. And Dow is betting on and Dow believes that the market's going to want that. It's going to need that.

Rob Westervelt:

And it would seem to be a similar story with circularity. You need the incentives. You need regulatory, the customer pull, the economics to work out. How do you see that circularity drive play out?

Mark Eramo:

I'm glad you mentioned regulatory and really policy. Put those together, that really is the other dynamic that has to fit with what I said earlier. Market technology, customers, regulatory policy, all lining up to support moving forward. So certainly, I don't hear the industry saying, "Don't regulate us, there should be no policies." There are good policies that could really help these things move forward. And on circularity, I think similar question, but also, I put circularity in a different light because I think circularity is an important answer to plastics waste, and I don't think plastics waste is going away because I mean, we are tackling it. We have leaned in hard. There are solutions that are evolving, but we're not there yet. We've got a long way to go and we need to demonstrate as an industry, and I mean the entire ecosystem, that we've got our arms around this, that we can manage this issue of plastics waste.

50% of the demand of base chemicals goes into plastics. Plastics, again, as you know, I'm preaching to the choir here, Rob, these are fundamental products that are important to enable energy transition, to enable our efficiency gains, lightweighting, fuel efficiency. All of these things result from plastics and the applications that we're using.

Rob Westervelt:

Let's jump over to GenAI and digitalization. Where does the industry stand today? Are we on pace with what other manufacturing sectors are doing and how do you see that reshaping the industry?

Mark Eramo:

So artificial intelligence, I'll use that broad umbrella. I think from a chemical industry operational perspective has been growing and being put in place for some time. We've been lighting up complexes. So we can collect data, analyze data, do more predictive maintenance, be more proactive, be able to listen and see and feel exactly what's going on in these operations. That helps with not only maintenance, but helps with quality of products and helps with safety of our employees. So all those things, I think the industry has leaned in from that dynamic of the operational, and I think that just continues to improve. What I see is what's on the horizon, even in our own business, let alone the companies of the chemical industry, is that interaction between GenAI and the human.

And to be able to, I as an analyst, be able to leverage these tools that are available through artificial intelligence, to make a better analysis, to automate the mundane, to enable me to interact with my customer in a more efficient way, to make my workforce more efficient themselves. I mean, I think those are the next things that are coming, let alone the quantum compute power that's also out there as an opportunity.

Rob Westervelt:

Final question, I'm going to ask you to look into your crystal ball, the 40th anniversary. Looking out over the next 40 years, what do you think are the skills or the capabilities that will be required for chemical makers to succeed? What are the day-term shifts you see, and how should companies be thinking about it?

Mark Eramo:

That's a great question because I think skill sets and people, they're just fundamental. And even talking some of the chemical entry executives here, Peter Huntsman in his interview or in our panel on stage, talked about the fact that we are a people business. We're a people business in terms of the relationships that we have around the industry. We're a people business with the people we have on the ground making these things work. What's interesting is, I think in the near term anyway, chemicals, hydrocarbon industries will compete with high tech for the AI experts, the data scientists, and those who are really savvy on the AI side to pull those resources into our companies, especially the younger folks right out of school because of the way they may look at this industry. And so I think that becomes a challenge.

Some companies have talked about how they're sending people off to be trained. So take people who know the business, go let them train for a year, and then come back and figure out how do you implement the right type of AI workforce integrated with the bread and butter. You got to have chemists, you got to have the scientists, you got to have the STEM folks that are just the hallmarks of the chemical industry and what it's been able to accomplish for 40 years and for years to come.

Rob Westervelt:

Well, Mark, thank you very much for joining us.

Mark Eramo:

Thank you, Rob. Appreciate it.