What were the key takeaways from WPC 2025?

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Rob Westervelt:

Industry players seem resigned to a lower for longer scenario. There's a lot of oversupply out there that still has to be worked off in most basic chemical chains. So there's the hope that we are starting to come off the bottom margin-wise, but significant improvement is still a ways out.

Vincent Valk:

Hi and welcome to the Chemical Week Podcast. I'm Vincent Valk. The 40th annual World Petrochemical Conference wrapped up in Houston recently and a lot happened there. I think we at Chemical Week and our colleagues at S&P Global Platts filed something like 40 stories from the event. Today I'm joined by our own Rob Westervelt, Mark Thomas, and Clay Boswell, who covered the conference and worked down in Houston to recap some big themes. Hi, guys.

Rob Westervelt:

Hey Vincent. Welcome back.

Vincent Valk:

Thank you very much. Yeah, my first time hosting a podcast episode since coming back from paternity leave. So good to be back. To kick things off here, I'll start with a very high-level question. Definitely want to get all of your takes on this one. So what would you say were your major takeaways, major themes from this year's WPC?

Rob Westervelt:

I'll start. At a high level, I guess this will run through everyone's responses, but I think industry players seem resigned to a lower for longer scenario. There's a lot of oversupply out there that still has to be worked off in most basic chemical chains. So there's the hope that we are at the bottom, probably start to come off the bottom margin-wise, but significant improvement is still a ways out. Let's say at least a year out. Some have it even longer. A lot of talk about the policy uncertainty with the Trump administration coming in, particularly around tariffs and how that's going to play out.

And I thought the other interesting element was the discussion around net-zero circularity and sustainability. I don't think as much of a pivot is as the reality is starting to set in here, and these are things that are now being talked about publicly, the challenges and how difficult it is to meet those net-zero and circularity targets from an economic return perspective, from an availability of feedstock perspective, and more recently, policy uncertainty when the US pulls out of the Paris Accords. I feel what's going on certainly in Europe and the shifts there. So I think a lot of discussion around some of the reality of what it's going to take to meet the net-zero and circularity commitments. Certainly I heard repeatedly the ambition is still there, it's just the path forward is a little murkier. Those were two of the three top takeaways for me.

Mark Thomas:

Yeah, some great points there, Rob. I think from my point of view, it was quite clear from a lot of the opening panel sessions and discussions that there's been a bit of a realization that companies also can't keep waiting for things to get better. And so there was a lot of discussion in the sessions about actions that have been taken and are being taken. So I think despite whatever uncertainty remains at the moment around geopolitical clashes and tariffs and trade barriers and so on, due to the underlying economic conditions and the lower for longer outlook for chemicals, you're getting companies now talking about capacity rationalization, not only in Europe, but in other parts of Asia as well. Southeast Asia is also going through rationalization. You're seeing it in Japan.

So there's been a lot of, I think, realism brought to the WPC. I'm already looking forward to the next year's edition to be honest, because it'd be really interesting to see how much progress is made in terms of moving on from this trough condition that we're in at the moment to see really what action has been taken over the course of this coming year. Because that was really for me, the big takeaway.

Clay Boswell:

Yeah, yeah. I think part of what's going on with conditions being as poor as they are for as long as they have been, people thought things would improve in China faster than they did. So there were a lot of assumptions they'd made that it turns out they were mistaken. And I think that everyone's wondering where have we gone wrong? What's the actual underlying situation? And then of course the tariffs come along and they throw an extra dose of uncertainty on top of that. But I do wonder to what extent. The tariffs themselves are a sort of a wake-up call in the way because they sort of are a response to things that have I think maybe been ignored. Something was going to happen inevitably. And this what happens when you put off correcting something for so long, you end up with some strong medicine.

Vincent Valk:

By something that was ignored, do you mean just sort of the concentration of manufacturing prowess in China?

Clay Boswell:

Yeah, China's taking over basically the manufacturing of the world, and all the massive overcapacity going on there. And then the assumption that things would operate there that anyone ever really ever believed it was going to operate. Like most market economies, it still doesn't, and I don't know if it ever will.

Vincent Valk:

Yeah, that's a good point that certainly on some level you could argue that putting so much capacity and so much manufacturing know-how really in China and chemicals and just in the broader manufacturing sector too as well. I know this has been a big thing in batteries and in solar and a lot of things in China. On some level that was probably going to come back around. Which somewhat is a good segue, I think, into my next question. Geopolitical uncertainty is clearly weighing on the outlook. Are there any signs of how companies are aiming to navigate this and to what extent is this really about the tariffs? Rob, I'll throw this one to you to get it started.

Rob Westervelt:

Yeah. Start with the second point of your question. To what extent is it about the Trump administration tariffs? I think that's the element being most discussed now, but if you take a broader look back, let's look at what's happened over the last five years. Maybe you had COVID, things stopped on a dime. You had the relatively on the manufacturing side, the quick return of the supply-chain challenges, Russia-Ukraine, US-China tensions and now you certainly add the Trump administration tariffs, and the other geopolitical elements that have come out of Trump administration. That's the big thing. I think it's clearly weighing on sentiment and in terms of how companies are navigating this, WPC picked up a few things about this. Even if you look at the import data and the export data, certainly there have been a lot of imports into the US so people trying to do what they can to get in front of Canada, Mexico, China tariffs, and now the more broad global tariffs that may be happening this week as we record this.

So geopolitical uncertainty has been a constant the last five years, companies have had to navigate this. If you bring tariffs into the element, they're certainly moving things around. You hear things about not nearshoring, rightshoring, just making sure you're producing in where you should be. So there's a lot of companies, the big companies have flexibility. I heard a few times, "We make in local markets for local demand." As you work back through the chain that is complicated by raw material supplies and other elements. But I think companies have been looking at this for a while now and trying to, for global industry like chemicals, geopolitics has always been front and center in terms of risks. So their specific situation may be new, but the geopolitical uncertainty and managing that risk is not a new thing and companies are doing what they can to mitigate it.

Mark Thomas:

Yeah, I think that's a great analysis of what's going on. What is incredible to me is you look at geopolitical uncertainty and of course everyone at the moment is talking about tariffs, but you think about what we've been through in the last few years as an industry right back from COVID and that complete upheaval of global supply chains, which left many products in short supply, stocks dramatically low and prices soaring. You even saw Europe of all things. You saw Europe actually making money as a chemical industry because margins actually improved in terms of crackers for a period of time and the US lost its traditional cost advantage.

And then you just back over the last two to three years, you've had the military confrontation between Russia and Ukraine and look at how the wider industries of commodities have coped with that massive upheaval. And then you've got the Red Sea issues, the Suez Canal and the Panama Canal hit by water shortages and so on. If you put all those together and asked what has the impact been on the chemical industry, it's been noticeable, but it's been accounted for and coped with through flexibility of supply chains and so on. So tariffs are the latest episode in that story, but again, I think the industry's ability to cope with geopolitical uncertainty is proven time and again.

Vincent Valk:

Yeah, that's a great point, Mark. Thinking about this as I read through the coverage of WPC, it is true that word uncertainty. I've heard that time and time again in my time covering the industry even before COVID. If you go back even to the 2010s people were constantly talking about it, and on some level you almost go, "Well, when was it certain?" But certainly the last five years have taken it to a new level. Wanted to drill into energy transition a little bit. How is the thinking around energy transition in the industry evolving? It's clearly not going away, as Rob I think pointed out when we started the discussion, but there was hype cycle around it. If you go back to maybe 2020, '21, '22, and that is very much dissipated and now there is even more policy uncertainty around it, especially with regard to the Trump administration, but I think you might see this in some other geographies as well. How is thinking around that evolving? And what are companies really thinking about doing that as they think about their energy transition investments and their energy transition strategies?

Clay Boswell:

Well, I think one thing that's interesting is that this news that came out today that Dow and X-Energy are submitting their application for the nuclear plant down in Texas. So Dow has really been pretty committed to net-zero. They've got the cracker going on up in Canada and now they're pushing forward on this thing down in Texas. The thing is, so much of it is regulatory driven, so there's a lot of politics involved. It's like how certain are these things going forward? It's not going away. Might slow down a little just because there's so many things to juggle these days.

Rob Westervelt:

McKinsey has called this the reality gap and that's starting to be discussed more publicly. Companies knew the challenges here in terms of policy uncertainty, the cost of what it would take to compensation. Also I think this applies to circularity as well in terms of who pays. There was a bit of a premium, but that wasn't going to cover the cost of what it would take to decarbonize the energy systems in the US or to make more circularity.

So I think the reality of that is becoming more front and center in public. These were 2030, 2050 goals, so they were always a bit out there on the horizon, but I think the expectations are, the reality is starting to set in here that this is difficult. This requires the economics to work, the technology to work broad market alignment. I think the ambitions are there broadly, but it's difficult and it's going to be expensive, is that the word I'm looking for? But it's going to cost something and no matter who pays and how that impacts the market has to be sorted out. I think that's a good discussion that's going on now and it's happening. I think the reality gap is now being talked about publicly and it's being addressed. So to Clay's point, the ambitions are there, how it gets achieved is not clear. And how long it takes, that's still to be determined.

Vincent Valk:

Yeah, definitely probably more of an evolving situation, but still going to be a big theme going forward. Mark, I'm going to direct this next question to you to get started, and I'll just put it to you point-blank. Is there going to be a chemical industry in Europe in 2030?

Mark Thomas:

Good question, Vince. Is there going to be a chemical market? Absolutely, yes. It's still a huge market for chemicals. Is it going to look the same? Absolutely not. We've written in Chemical Week many times over the last couple of years in particular about the industry's need to rationalize capacity and you are seeing at least four crackers for example, taken offline by companies including SABIC, ExxonMobil, these crackers in nearly all cases, they're old machinery. And it suits the subject we just touched upon actually, the issue of getting to net-zero. A lot of these older plants are really not suited to net-zero and the cost of decarbonizing them is, and would be huge. So in many cases, I'm not saying it suits these companies to rationalize in Europe, but it does help play its part. I think Europe has a lot to do to make sure the industry does get where it's going.

I think though you have seen a number of announcements in recent times the industrial clean deal in Europe and others where there's a recognition on both sides from the industry and from governments from the EU that more support needs to be given and more frameworks needs to be in place in order to ensure the industry survives. We also touched upon supply chains and geopolitical uncertainty. There's a recognition that even with trusted partners suddenly becoming not so trusted in trade, that you have to make sure that you have enough of your own production capacity in the region just in case.

So there is going to be a different looking industry in terms of chemicals in Europe, and I think you will also see advances driven by regulatory drivers, especially in terms of bio and decarbonizing initiatives and technologies in Europe. I think you're going to see Europe leading the way there more through necessity. But in terms of a producing region where base commodity chemicals are the order of the day, I think those times are coming to an end in Europe. So a very different looking European chemical industry, but still a European chemical industry.

Rob Westervelt:

And to echo what Mark said there, yeah, there still will be a large, relatively large market for chemicals in Europe, but it's going to look hugely different. Look at some of ACC's global regional production indexes. In December, Germany's chemical production was 75% of what it was in mid-2021. So that sort of post-COVID peak. So I mean Germany has lost a quarter of their production in the last four years, almost four years. And this isn't a cyclical downturn, it's a structural shift and transformation that's going to go on across Europe. Germany's the hardest hit right now, but it's not going to bounce back. From here, it's going to be relatively slow growth.

Europe has to adapt and change how that plays out remains to be seen. Mark talked about all the cracker shutdowns, but if you look at what Shell announced last week, continuing on their repurposing and high grading of assets in Europe, potential sale of US assets and basically looking by calling themselves not the best natural owner of these assets, the next five years are going to be very interesting and transformative for Europe. And I think it'll look very different 2030 than what it does today.

Vincent Valk:

Yeah, that certainly seems to be the case and we're seeing the beginning of that now, I would say. One more kind of broad question here. There's some interesting long-term dynamics happening with feedstock naphtha related to a projected peak in refined fuels demand. What does this mean for the feed slate for basic olefins and aromatics? And Clay, I'll put this one to you first.

Clay Boswell:

Yeah, sure. Refined fuels demand supposed to peak around 2030, but the pet chem demand, there's just no end in sight really even beyond 2050. It's not going to drop. The pet chem industry forever has always piggybacked off fuel after refining and the naphtha was just a byproduct, we got a nice price for that. But if fuel demand peaks, meanwhile naphtha demand is going to continue to grow, how are you going to incentivize production of that? So the price of that will have to go up. And then meanwhile, future refineries, they're increasingly going to be devoted to producing more naphtha and less fuels. They'll be basically crude oil to chemical facilities and these are going to be quite massive. And refineries are huge and as these things come online, we saw it already with China and the Paris Island, these are really big capacities so when they come online, there's going to be a little lumpiness in the market. It'll be like a flood of product and then maybe more difficult to navigate really just because when these things come online, suddenly all the margins crash.

Mark Thomas:

Yeah, I think Clay makes a great point there. It's interesting to see that naphtha obviously still remains a dominant feedstock in Asia and in China. And although you've got really good low-cost feedstocks in terms of natural gas liquids, LPG and so on, especially the exports from the US at the moment to China and elsewhere, but those exports, the NGLs boom, it will be tailing off as we go into the '30s and naphtha resumes its role as that driver of petrochemicals growth going forward.

I think it's also worth pointing out that there's only going to be a few players who can really make the investments necessary to develop on purpose naphtha production. Clay mentioned crude oil to chemicals, and there's another term as well, direct oil to chemical. These are massive, massive projects, 7, 8, 9, $10 billion projects minimum. And when you see companies like Aramco actually deciding to shirk away from doing them domestically and instead investing in setting up supply agreements and taking stakes in large operations in China where there are large oil to [inaudible 00:18:14] in complexes and so on. I think it's going to be really interesting to see how naphtha evolves, and as the demand for it evolves, how it's going to be supplied because there's going to be less refinery and there's going to be a real, I think, squeeze on the price of naphtha.

I think you really could see naphtha become a really highly desirable product with a really interesting growth in price that will disconnect it from oil, something that's not happened before. You're going to have a disconnect of naphtha from oil price at some point, which is going to be really interesting trend going forward.

Vincent Valk:

Great. Thanks guys. To close it out, I want to play a little game here where I read off a quote that I found interesting from one of our many WPC stories. Give a quick take and then we'll go around the horn and get everyone's thoughts on the meaning behind it. First quote here, CPCIF's fifteen-year plan, which outlines Chinese chemical demand recovery places an emphasis on development of high-end chemical production, limiting capacity expansions on products with weak margins and "deepening interaction with the global economy," Fu said. And that is the head, I believe, the head of CPCIF, which is the Chinese Chemical industry association or coordinating body, maybe you could say.

My take on this year, as I read that, I think to myself, if I'm a US or European or Japanese producer, especially a specialty chemicals producer, when you put this together, it would really give me pause. I read this as basically saying we're going to try to do with specialty chemicals, what we are now doing with commodity chemicals. And kick this around the horn. Start with you, Rob.

Rob Westervelt:

Yeah, I mean I was in that session as well and it left an impression on me, left a mark for the reasons that you outlined there. And if you look at it's China's next five-year plan, so they're emphasizing quality over quantity, right? So there's been a huge mass buildup of basic chemical supply in China over the last, call it 25 years. And obviously that base of capacity is not going their way. They're going to continue to build, but they are going to even focus more attention on the higher-end markets. So some of the markets look at polymers, some advanced polymers, copolymers that have been relatively more stable than, say, basic polyethylene. It should be a matter of concern for the big producers. China continues to look at high-end markets and China is there today. They dominate clean tech, they dominate solar, electronics, battery materials. These are specialty technology-intensive markets that China now dominates.

I could turn that to, say, more broadly around polymers. It's certainly something to watch. We'll see how that plays out. But I would not discount their ability to do it given on what we've seen happen already. Clean tech electronics, if you look at even more recently what's happening in markets like TAO-II and MDI, which are more specialized commodity markets, China's taken leadership position in those markets from not just a quantity perspective but a quality perspective. So there's a template they know how to do it, and it's going to happen over the next five to seven years.

Mark Thomas:

Yeah, I think that's a great point. I think the one thing I'd add is as well is just China's drive is obviously, first of all, most importantly from its leadership perspective is to be self-sufficient in chemicals. So I think a lot of what is doing there is still driven by its own internal market. Its huge internal market that it has. So when it becomes something that impacts upon the rest of the world, and it will, I think it's just a case of when that time will be because a lot of these products, if it is targeting them, will be initially for domestic use I would say. So I think that's really the case of just trying to figure out globally as an industry that will be trying to do this is when exactly does it push into these more specialized commodities that start to take effect on external markets.

Clay Boswell:

The thing about self-sufficiency that's sort of ironic is that it's the self-sufficiency to supply the manufacturing sector in China, which has basically eliminated the rest of the world's self-sufficiency. So it's not supplying its own domestic demand for these products, they're all going out of the country. You could take it in a kind of hopeful way that it's going to be sort of a more integrated in a way instead of this outside sort of influence become integrated in the same way that other countries are integrated with the global economy. That would be great.

Vincent Valk:

Yeah, I mean I kind of read it as a euphemism for, "We're going to dump this stuff on you." But maybe I was being unduly pessimistic. We are going to talk a little bit about net-zero and circular economy. I know Del making big bets on that. So, "However, market education around lower carbon chemical products still remains a challenge. It's a lot of explanation that needs to be done to make sure that value is being added by selling these products," he said. Noting the company has established a dedicated carbon value creation team to address the challenge. And he, in this circumstance, just to be clear, is LyondellBasell CEO Peter Vanacker. When I hear that, I think that the value add is mostly about contributing to various net-zero goals that many producers and brand owners have announced. But it can't just be that otherwise a major producer like LyondellBasell wouldn't be betting so much on circularity. What am I missing here and what else is the value add? And for this one, I'll start with Clay.

Clay Boswell:

That sort of really is all there is to it. I mean part of it's still called social license to operate. People don't want you to have a filthy business polluting the environment. But really it just does come down, I think, to consumers want these things. Consumer product companies want the products that provide these things that serve as net-zero goals, and also the circularity, which is also keeping wish on the environment. The problem I think that he's talking about there is conveying to consumers how the products LyondellBasell and so on supply actually give them the things that they want. So people, what is the connection? How do you convey that on a product, something on the shelf? How does a consumer know that this is actually what it provides? What is this extra value that they have to pay for in one way or another?

Rob Westervelt:

And I just quickly add there, I think also the comment just highlights the need for broader supply chain alignment on circularity. From some of the discussions at WPC, there's still a very strong premium for low carbon polymers in general. And so the premium's there, the market uptake is there now it's just how do you get the broad supply chain alignment around this? And I think that goes to the point of what he's talking about in terms of making sure that the value is being added and acknowledged in the market.

Vincent Valk:

So this next one goes a little bit to something that you had mentioned earlier, Rob, around supply chains and rightshoring, nearshoring. So "While shifting geopolitics and tariff threats have made nearshoring to an extent inevitable," said Peter Huntsman, CEO of Huntsman during a panel discussion, others on the panel noted that in an industry with long and complex value chains, placing the right elements of logistics in the right place requires better strategic thinking. And reading this, I suppose that should include an element of looking at where your suppliers and customers are, and also local policy around tariffs and trade. And I know this kind of more regional production has been something that the industry has been looking at for a while, especially since COVID and the supply chain crisis. But what should go into that strategic calculus? And here, I'll start with you, Mark.

Mark Thomas:

Yeah, thanks Vincent. I think I'll keep this brief, but basically a lot of that subject was discussed in a particular supply chain session at WPC, an excellent session. But there was a lot of talk about strategic resets and the importance of rightshoring, nearshoring and so on. And a lot of companies were very quick to talk about supply chain now being a C-suite issue, something discussed in the boardroom at the highest level. But it was interesting to hear comments from Gina Fyffe who runs one of the trading companies, Integra Petrochemicals. And she was asked a question obviously pretty much along the lines of what you said. Strategically, how has the industry adjusted itself? How has it learned? And she said, Well, to be honest, not really."

It kind of learned for a while about how to make its supply chains more robust but at the same time more flexible, which is good and that they are. But then she also pointed out as a trader that the most important thing is the price. The price of getting a product from one place to another. And despite the importance of reliance of supplier and the consideration of geopolitical risks and so on, it quickly reverted after COVID and after some of the other issues we've discussed around volatility and getting places from A to B. It comes down to the price and that is essentially, I think still a key point. Supply chain remains dominated by the price of getting something from A to B as cheaply as possible. And that often overrides almost every other concern.

Vincent Valk:

All right, thanks very much to Rob, and Mark, and Clay. And this is Vincent Valk signing off for Chemical Week.