Weak demand and ample supply will continue to constrain global chemical producers’ volumes and margins in 2024, Fitch Ratings says. Overall market conditions have reached the bottom of the cycle in 2023 but we expect little to no recovery in 2024.

Regions with higher costs, such as Europe and Latin America, are being targeted for exports by producers from Asia, North America and the Middle East that benefit from lower production costs due to cheaper feedstock and energy or large-scale assets. We expect this to continue in 2024, leading to variation in performance between regions.

While we expect overall demand to remain soft in 2024 in North America, issuers’ end-market exposures will continue to influence earnings. While chemical companies linked to commodities or non-residential construction are likely to generate weak earnings in 2024, many producers selling into the packaging, consumer nondiscretionary and healthcare end-markets should display more earnings resilience.

European producers are particularly affected by higher regional energy costs, despite some moderation since 2022. MENA producers with access to competitively priced natural gas are better positioned to withstand the protracted market trough.

We believe utilisation rates will remain low in 2024. This particularly affects commodity producers, as they typically need to operate at rates of 85%-90% to generate profits due to high operating leverage, while specialty producers can remain profitable at much lower rates. We also expect more asset-closure decisions – both temporary and permanent – in 2024, especially in Europe, as companies re-evaluate their industrial footprint.

LatAm companies, most of which operate in the second and third cost quartiles, have been particularly affected by China’s goal to become self-sufficient in chemicals. Fitch-rated issuers lost approximately US$ 8 billion in aggregate revenue and we expect a recovery in margins to begin only in 1H25.

Fitch expects a mild recovery in China’s demand as destocking ends. However, the recovery is limited by slowing economic growth. Chinese chemical margins are broadly stable as selling prices appear to have bottomed out and cost pressures should ease.

Healthy GDP growth in India and Indonesia will support domestic demand, but slowing economic growth in many developed markets may weigh on international revenue. Fitch expects a drier-than-usual summer in Australia to potentially affect demand for crop-protection products and fertilizers in 2024. The winter crop harvest could remain unaffected due to the delayed onset of rainfall across eastern Australian cropping regions.