Tariffs force petrochem contraction

US President Donald Trump's trade wars are nudging the global plastics industry towards a painful but necessary restructuring to address acute overcapacity that has kept the industry's profits in a prolonged slump.

- Ron Bousso

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, Saudi Aramco 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 US, 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.