Trump tariffs force much-needed petrochemicals contraction: Bousso

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By Ron Bousso U.S. President Donald Trump's are nudging the global plastics industry toward a painful but necessary restructuring to address acute overcapacity that has kept the industry’s profits in a prolonged slump.Demand for plastics – from packaging and manufactured goods to solar panels and car parts – is expected to grow sharply in the coming decades as middle classes grow in large economies, particularly in Asia. This means more oil demand.Consumption of petrochemical feedstocks – oil-derived products such as naphtha, propane and ethane – accounted for 95% of total oil demand growth between 2019 and 2024. Creation of these plastics building blocks is forecast to rise by 2.1 million barrels per day between 2024 and 2030, reaching 18.4 million bpd, according to the International Energy Agency.Given this growth, petrochemicals’ share of total oil consumption is expected to increase from 15.8% in 2024 to 17.4% by 2030, offsetting declines in demand for transportation fuel.It is therefore no surprise that oil and gas majors including Exxon Mobil NYSE:XOM, Saudi Aramco TADAWUL:2222 and the UAE’s Adnoc have invested heavily in petrochemicals, betting that rising demand for feedstocks will counterbalance the impact of electric vehicles on fuel consumption.China has also ramped up domestic production to boost petrochemical self-sufficiency. In the U.S., meanwhile, there has been a surge in cheap ethane production and thus petrochemical plants thanks to the shale boom that began in the early 2010s.GROWING PAINSRapid petrochemicals production growth since 2022 has created a severe imbalance between supply and demand, putting heavy pressure on margins. Benchmark Chinese PDH margins, known as cracks, have been deeply negative for most of the past two years. Benchmark naphtha cracks have also turned negative in Asia, Europe and the U.S. in recent months.As a result, chemical producers worldwide have suffered a collapse in earnings.South Korean petrochemical producers LG Chem and Lotte Chemical posted losses in 2024. U.S. producer Dow Inc cut its dividend last month after reporting a second-quarter loss. Dow and German rival BASF XETR:BAS both cut full-year guidance, citing added pressure from global trade wars.Unfortunately for the sector, petrochemical overcapacity is expected to worsen. Supply is projected to exceed demand by 20–25% by 2030 as new plants come...

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