For years, petrochemical companies have enjoyed a golden age of expansion, fueled by cheap natural gas from Texas shale fields and highlighted by soaring profits and multi-billion dollar capital projects generating thousands of jobs. Executives from the Gulf Coast’s biggest chemical makers— including Dow Chemical and Exxon Mobil Corp.—have been relentlessly optimistic about the world’s appetite for plastics and the prospects for their chemical businesses, but the golden age, The Houston Chronicle reports, may be losing its luster.
On Thursday, the German chemical maker BASF announced it would cut 6,000 jobs across its global operations after recently shuttering its chemical plant in Zachary.
Analysts agree the petrochemical industry is edging toward a downturn, which could hit in as few as three years.
“The golden age is behind us,” says Robert Stier, senior lead of global petrochemicals at the research and pricing firm S&P Global Platts. “The times of exceptional margins are over.”
Indeed, average operating margins—measuring profits before taxes and interest—fell 22% among 52 chemical companies in the first quarter this year compared to the same period last year, according to the global research consultancy Accenture. And spot market prices for North American high density polyethylene, the commonly used plastic driving the region’s petrochemical boom, have fallen by one-third since March 2018, according to research firm IHS Markit.
As conditions weaken, Gulf Coast chemical makers should fare better than most because of the region’s access to low-cost natural gas, which provides feedstocks for petrochemicals. Still, analysts said, the Gulf Coast industry won’t be immune from a slowing global economy, trade tensions with China, oversupplied markets and the backlash against plastic waste.
When the downturn hits the chemical industry, profits will fall for Gulf Coast producers, analysts said, leading to delayed investment decisions, lower production and slower startups of new plants that could delay or reduce the creation of jobs.