We may have underestimated the impact of disruptions in the chemical industry’s supply chain.

In our research and practical trading of the chemical industry’s supply chain, we have suffered many setbacks—our biggest blind spot was viewing issues in isolation. Chairman Mao once said: “You can’t know the taste of a pear unless you taste it yourself.” In trading, one must adhere to seeking truth from facts—especially being honest with oneself. On the other hand, things are universally interconnected. This is especially true for commodities with extremely long supply chains: one must not only observe the flower on a single tree but also recognize that the entire forest grows interdependently. Studying eggs requires analyzing just three variables: feed, poultry farms, and consumers. Studying apples requires examining only inventory levels and market prices—their sole downstream use is consumption! But a single chemical plant produces dozens of products, with product catalogs spanning over a thousand items. A price fluctuation—or even a supply shortage—in just one product could trigger an unpredictable, potentially exponential butterfly effect. Thus, we realized that trading chemical products demands monitoring *all* related commodities—a necessity born of helplessness. Human capacity is limited, making chemical trading exceptionally challenging. Here’s an example: Initially, extreme cold weather in the U.S. caused power outages. The data we observed showed reduced crude oil output, driving the strongest price surge in crude oil on overseas markets. Yet we must remember: the U.S. remains the world’s largest ethane supplier. Meanwhile, numerous new chemical plants across the Middle East, South Korea, Japan, and China rely on gas-based chemical production. So if the ethane-to-ethylene cracking process is disrupted, *all* downstream chemical products will be affected. Ethane produces ethylene; ethylene produces LDPE; ethylene also produces ethylene glycol; ethylene produces PVC; ethylene is also used to produce styrene. If this logic holds, overseas PVC, ethylene glycol, and even polyethylene (PE) prices could all rise. Indeed, PVC has already surged by $50. Overseas styrene plant maintenance is routine—not sudden—and was previously described in our official account (“Commodity Research Framework: The Capriciousness of Styrene”). Yet this time, external disruptions may extend both the duration and scale of such maintenance, causing overseas styrene prices to spike sharply—by as much as $300. According to data from Longzhong Network: A 7.3-magnitude earthquake struck off the coast of Fukushima, Japan, forcing the shutdown of over a dozen coal- and gas-fired power plants in northeastern Japan. Following the quake, ENEOS shut down its Sendai refinery—processing 145,000 barrels per day—while Mitsui confirmed the closure of its Chiba cracking facility, which annually produces 612,000 tons of ethylene and 330,000 tons of propylene. Ethylene and propylene sit at the very top of the chemical supply chain. If this upstream segment is interrupted, even methanol could be affected—since propylene and methanol compete in the polypropylene (PP) production chain. Styrene prices have already surged dramatically; shortly thereafter, South Korean ethylene glycol facilities began shutting down.

As the Rhine River dries up, German industry must transform — 20230726

Covestro, a German chemical manufacturer, transports over 30% of its finished goods via the Rhine River and relies on the same waterway to import raw materials. Climate change and increasingly frequent low-water conditions pose major challenges for Covestro and other companies. To cope, the group has chartered two low-water barges capable of delivering hydrochloric acid to customers even when the Rhine’s water level at Cologne drops to just 0.40 meters. Approximately 260 kilometers downstream, BASF has begun using a low-water vessel to supply its Ludwigshafen hub—about 40% of whose raw materials arrive via the Rhine. For flammable and toxic chemicals, river transport is often the *only* viable option. (One barge can replace many trucks; rail and truck loading/unloading operations carry significantly higher risks than shipping.) However, according to the DTG Shipping Cooperative, when the water level at Kaub falls below one meter, conventional barges must reduce cargo loads by more than half—to under 1,500 metric tons. By contrast, BASF’s new low-water tanker, the “Stolt Ludwigshafen,” can still carry 2,300 tons and navigate the Kaub bottleneck at an ultra-low draft of just 30 centimeters (11.8 inches). What a flat-hulled ship! Barbara Hoyer, Vice President at BASF, noted that the world’s largest chemical group depends heavily on the Rhine because most liquid raw materials—including naphtha—are shipped via this river. “We need vast quantities of raw materials to sustain production—but shifting these volumes elsewhere is extremely difficult,” she said. ThyssenKrupp (formed in 1999 through the merger of Thyssen and Friedrich Krupp)—a German heavy-industry giant—declared force majeure during the 2018 drought after failing to receive sufficient raw materials. Since then, the company has long-term chartered a train delivering roughly 3,000 tons of coal daily for steelmaking. The low-water impact extends beyond large corporations. Slowed Rhine traffic contributed to a 0.4% decline in Germany’s GDP in 2018. According to the Kiel Institute for the World Economy, empirical evidence shows that if the Kaub water level remains below 78 cm for 30 consecutive days—as occurred in both 2022 and 2018—industrial output falls by 1%. Deutsche Bank already forecasts a 0.3% contraction in Germany’s economy for 2023 and warns that prolonged low water levels could delay the country’s recovery from recession. Still, Roberto Spranzi, a member of DTG’s board of directors, notes that reduced economic activity has lowered shipping demand—making the low-water impact somewhat easier to manage than in previous years. For industry, profit margins are squeezed by rising freight costs and expenses associated with chartering low-water barges.

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Stolt-Nielsen flags limited visibility, lower chemical trade volumes amid supply disruption

Stolt-Nielsen flags limited visibility, lower chemical trade volumes amid supply disruption

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