2023 OUTLOOK

UK Economic Outlook

Even before any mention of recession, most economists were already predicting that the UK would have the lowest rate of growth in the G7 due to the negative impacts of Brexit on trade. A global economic slowdown and rampant inflation will put further pressure on the UK economy, and higher interest rates will have a significant impact on the housing sector in which transaction volumes are expected to fall, but the prospect of falling average house prices will also significantly dent consumer confidence.

Whilst a UK economic slowdown may be more likely to affect services including leisure and entertainment, businesses will face significant cost pressures from factors including fixed and variable cost inflation, higher finance costs and an increase in the rate of corporation tax from 19% to 25%.

The UK Government continues to review the UK REACh legislation and has extended the deadlines for the full registration and announced that it will enter into discussion with regards to the need to closely follow EU REACh, or to take a different approach.

Global Geopolitical Issues

A rapid resolution of the Russian intention to invade Ukraine looks to be highly unlikely, and with this comes the prospect of increased tensions between East and West, although China appears to be resisting calls from President Putin to become more involved in the conflict. The protracted withdrawal Russian origin crude oil, natural gas, refined products and petrochemical derivatives has resulted in a jump in prices for many these essential commodities, and substitution with products from alternative origins will continue to require significant investment in infrastructure and resources, which in turn will have longterm consequences for price levels which are now likely to remain elevated into the longterm.

Logistics

The extreme spike in international shipping cost in 2022 is unlikely to recur in the foreseeable future, and as such the movement of polymers around the globe will not be subject to any prohibitive premiums. There remains the possibility that container shortages could recur if Covid-19 results in significant issues for the Chinese economy, or if the economic slowdown in the West results in slower turnarounds of shipping containers. Since the crisis last year, more shipping capacity is now on-stream and additional containers introduced.

On the domestic front the issue with a shortage of HGV drivers appears to have eased, and even in the final quarter of 2022 when seasonal demand is high, there were no significant issues.

Further logistics cost inflation will take place in 2023, as providers look to recover cost increases and improve profitability. Inevitably these costs will be passed through the entire supply chain, and in part are an important factor in retail inflation.

Exchange Rates

Relative prospects for the UK economy are likely to dominate exchange rates throughout 2023. Whilst USD:GBP exchange rates are a typical reference, the perceived weaking of the US economy means that referencing against more stable currencies such as the Euro and JPY is likely to give a more accurate reflection of the views of the international markets on the value of the GBP.

With more stable domestic politics, there should be less volatility with exchange rates and it is expected that the GBP:Euro will continue to trade a similar levels throughout 2023.

Crude Oil

The likely scenario is that Brent Crude will continue to trade in the 70 – 90 USD per barrel range, with energy companies trying hard to manage supply in an economic environment that will tend towards falling prices, in an effort to stabilise the slowdown that is taking place. It is notable that many traditional energy companies that have been heavily reliant on Crude Oil sales, have increasingly diversified their sources of revenue, with many now turning more to renewables for sustainability both of the planet and for their business models.

Feedstock C2 (Ethylene)

Ethylene pricing is likely to be heavily influenced by the level of PE imports from the USA, which started to resume in 2022. With the expectation that US imports will further increase, as new capacities come on stream, it is likely that local demand for C2 within Europe will be suppressed. If this proves to be the case then the likelihood is that ethylene prices will decline, which along with competitively priced PE US imports will tend to cap European PE prices at similar levels to the end of 2022.

C3 (Propylene)

C3 has a double reliance on crude oil refining in which C3 is a significant cooutput of Naphtha cracking for ethylene and also a biproduct of the FCC (Fluidised Catalytic Cracking) process used to upgrade the petroleum fraction of crude oil distillate to the required environmental standards. Whilst the ratio of C2 to C3 in the Naphtha cracking process can be adjusted, this is within a relatively narrow window and therefore low C2 demand along with refinery output rates will impact C3 availability.

Benzene

This is an important aromatic hydrocarbon compound which is the basis for the following intermediates including:

Ethylbenzene

Cumene | Cyclohexane | Nitrobenzene | Linear Alkylbenzene | Maleic Anhydride | Others

Price volatility is expected to continue, particularly as petrochemical producers seek to improve the economics of this important aromatic petrochemical compound.

Styrene

Monomer (SM)

The fortunes of SM are closely related to Ethylbenzene and in turn Benzene. An important characteristic of SM and the Benzene family is the relative ease with which these products can be shipped around the world in tanker vessels, and this tends to increase volatility as material is either distressed in the case of surplus and exported or imported in the case of shortage.

Polyolefins

2023 will continue to be challenging for Polyolefins as new capacity for all grades comes on stream and demand is not expected to match it. Highly commoditised grades such as high melt PPHP, HDPE for blow moulding and LLDPE C4/C6 for film applications will be under the most pressure. Oversupply in these sectors will push producers to increase output of more specialised grades which will bring downward price pressure in these more premium products

Styrenics

The situation for 2023 starts with a similar level of uncertainty surrounding the impact of higher energy, and raw material costs and this is likely to be most focused around the more volatile materials such as PS. That said, for most of the styrenic polymers it is unclear what will happen during this year, with the most likely scenario is that prices will remain low and material plentiful throughout the year.