VINACHEM

US petrochemical producers are contending with shrinking margins caused by declining oil prices and rising gas prices – all while dealing with additional tariffs and uncertainty about the nation’s economy.

      Petrochemical prices tend to rise and fall with oil prices. ICIS expects crude prices will fall in 2025.
      US feedstock costs tend to rise and fall with those for natural gas. ICIS expects US gas prices will remain elevated.
      Most executives at a major trade conference warned about the potential of tariffs raising their costs and uncertainty delaying spending.

OIL, GAS PRICES WILL SQUEEZE US MARGINS

ICIS publishes forecasts for oil and gas prices, and both could move in ways that would compress margins for US ethylene producers.

The following shows the year-on-year changes in US oil and natural gas prices that are forecast by ICIS.

A key driver of higher natural gas prices has been a surge in demand for liquefied natural gas (LNG) from Europe and Asia Pacific, said Kojo Orgle, ICIS analyst who oversees US forecasts for energy and feedstocks. US gas supplies should tighten further because of demand for power generation, particularly from data centers.

“In contrast, crude oil prices are projected to decline amid accelerating supply growth from non-OPEC producers such as the US, Brazil and Guyana,” Orgel said. OPEC and its allies, collectively known as OPEC+, could choose to increase production.

At the same time, oil demand could be constrained by rapid adoption of electric vehicles (EVs) and slower economic growth, especially in China, Orgle said.

In 2024, oil’s share in total energy demand fell below 30% for the first time ever, according to the International Energy Agency (IEA).

So far, US contract ethylene margins have fallen from the start of the year, although they remain above levels in March 2024 and the 10-year average.

The rise in oil production will provide chemical producers with one benefit for US producers. Ethane supplies will continue growing, according to ICIS forecasts. Production from natural gas processing plants should rise by nearly 1% in 2025 and by nearly 3% in 2026.

HIGHER COSTS FROM TARIFFS

Falling prices in oil and rising ones for gas are coming at the wrong time for US petrochemical producers. Tariffs are increasing import costs for raw materials used to make many catalysts and plastic additives. Tariffs on steel and other metals could increase costs during turnarounds.

The EU and Canada have proposed retaliatory tariffs on US exports of polyethylene (PE).

The prospect of additional tariffs has contributed to economic uncertainty, causing companies and consumers to delay purchases.

Because of uncertainty about tariffs and mortgage rates, Huntsman CEO Peter Huntsman expects any rebound in the housing market to be delayed

LOWER FORECASTS FOR US GDP
Just as costs are rising for US producers, demand is falling.

Demand for US petrochemicals tend to rise and fall with GDP, and economists have lowered their forecasts for economic growth.

The following table summarizes the changes in forecasts.

Demand for petrochemicals could fall just as tariffs raise costs and energy prices become less favorable.