With half of 2023 behind us, it’s time to reflect on the first six months of the year in the chemical industry. If you’re reading this, you may want to go back and refer to our previous article on the outlook of 2023
, covering what we can expect this year.
Read on to check out our observations on the first half of the year, including the markets, decarbonization targets, and the carbon tax.
Upstream and downstream markets faced a slower start, but not as bad as anticipated
The first six months of the year normally start strong for the chemical industry, and the last few years have proven this. But this year we face a different scenario. We've seen a drop in global chemical production, down by 2 percent in North America, 14 percent in the EU, and nearly 9 percent in Asia (excluding China) when compared year-over-year. This is hitting some sectors harder than others.
The construction industry, for example, has experienced a lull, resulting in a trickledown effect for most chemical sectors. Additionally, all consumer-related sectors suffered from lower demand due to lower disposable incomes directly impacted by higher inflation. Although, it must also be pointed out that the automotive sector had a better start than expected, so not all industries have been hit as hard.
Overall, while many producers have released financial statements validating this, these reports also state that it was not as bad as anticipated. Most reports have similar sentiments, noting that the fear of an economic downturn is pushing the industry to be more cautious than usual. And despite this, the industry remains optimistic for the second half of the year, still expecting growth in industrial sectors.
Movement of decarbonization targets
As we anticipated, there will be significant movement on the sustainability agendas this year. McKinsey recently released a report
that explores four levers to reduce emissions in chemical parks, including steam generation, heat integration, electricity procurement, and energy efficiency. This tells us that the industry knows the focus points for decarbonization and just needs to clearly define its path forward, weighing impact with ease of implementation.
Interestingly, the report determines steam generation as the top driver, potentially reducing emissions by 25 to 35 percent by 2030. Among many types of carbon-free heat listed in the steam generation analysis, hydrogen is included and labelled the most expensive from an operational standpoint, something our high-temperature expert explored in our recent whitepaper on energy reduction in refractories
In the first part of the year, we’ve already seen many of our partners roll out new decarbonization initiatives, including low-carbon or zero-carbon footprint materials to support driving emissions down from the start of chemistry. The good news is that regulatory pressures will continue to create the need for transparency and help avoid greenwashing within these efforts.
European carbon tax puts pressure on the industry
This April the European Parliament met
to further the discussions on the Fit for 55 package, including the move to establish the Carbon Border Adjustment Mechanism, the world’s first carbon border tax. This will heavily impact many industrial industries, including steel, cement, and aluminium, amongst others. As of now, the tax is intended to be in place in October of this year, with a grace period during the transition.
As expected, this is creating pressure on Asian markets importing goods into Europe, although it’s not going to make quite the impact
as much as initially anticipated. Rather, pressure is also building within Europe. On one hand, these industries are being asked to decarbonize by 2030, investing billions into greener approaches. On the other hand, many are concerned that they could lose their competitive advantage with the tax in place. The European Steel Industry Association told EuroNews
that both their survival and their transition to green steel are at risk.
While nothing is set in stone and the council still needs to formally approve the carbon tax, this topic will significantly alter the way many of our partners and customers do business in the EU. We will continue to follow it and its impact.
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