Quincannon Associates sent representatives from New York, Singapore, and Dubai to participate in the 59th EPCA Conference. The Berlin Marathon served as the backdrop for this year’s conference, with more than 80,000 runners from around the globe filling the city’s streets and attracting crowds of cheering spectators. However, just below the surface of the cheering crowds, the mood across Europe and the EPCA conference itself was far more subdued. The global economy remains strained, and the chemical industries face an oversupply of capacity set against the backdrop of decelerating growth and economic uncertainty. High debt levels, geopolitical tensions, and trade barriers are creating even more layers of complexity and nowhere is this more evident than in Europe. Nearly four years into the war in Ukraine, growing tensions in Europe were palpable during the EPCA as Russian drones encroached into sovereign airspace of Poland, Romania, Estonia, and Denmark, potentially signaling an expansion of Putin’s aggressions into Europe’s eastern bloc countries.
It would seem the bleak outlook for the EU is a confluence of many things, routed in decades of increased regulatory oversight, low productivity, changing demographics, and insufficient investment in innovation. While high energy costs are a direct result of the war in Ukraine, Europe’s compromised position can largely be seen as a cautionary tale. But Europe is not alone, and the effects of the weak global economy can be felt across value chains worldwide. Asia is faced with a glut of new capacity in China which is forcing nations like Korea and Japan to shutdown aging systems to offset huge losses. While China’s “Anti-Involution” campaign targets excessive and self-defeating competition in key sectors, there seems to be no end in sight to its own expansion with new cracker and derivative projects being announced almost daily. With the markets in Asia already oversaturated, vulnerable markets in Europe and the developing world will be critical outlets for China’s growing surplus capacity.
With most producers writing off 2025 and 2026 expected to face similar challenges, the industry likely won’t get back on track until 2027. Chemical industries rely heavily on the housing and manufacturing markets, both of which remain subdued. Easing interest rates help, but the resounding pressure to address balance sheets is creating a bottleneck of innovation and causing new projects (outside of China) to be culled almost daily. Ultimately, this means that the chemical industry as a whole will lose critical ground and market share as companies concentrate on managing losses and paying down extensive debt. Eventually, demand will outstrip supply, and perhaps that will happen sooner than we think. However, it may already be too late for some highly leveraged companies thereby leaving the chemical industry ripe for consolidation. Barring any sustained recovery in demand, the likely focus will remain solely on improving cost structures.
On the shipping side, the market has experienced a boom following Russia’s invasion of Ukraine in early 2022. Increased ton-mile and irrational trade flows have benefited owners and operators, resulting in a historic high market and record returns. Much of the freight gains were supported by a long period with low investment in new capacity, due to the prolonged weak freight markets, which allowed demand to quickly outpace supply. This strong market of the past three years has spurred a massive orderbook for chemical tankers and gas carriers, particularly in China, which are set to flood the market with new capacity over the next three to four years. 2025 overall has been a good year for shipping, but there are cracks in the dam, creating legitimate concerns about the already fragile global economy and what a potential oversupply will mean for shipping rates. On the surface, lower shipping rates ultimately help Charterers, but cheaper shipping costs will also lower the barrier for entry into markets, like Europe, where there will be increased competition from abroad.
Moreover, maritime security continues to be an important issue. The rerouting of commercial shipping around the Bab Al Mandeb Straits has placed considerable strain both on capacity and supply chains alike. Despite continued escalation, more operators and shippers are being forced to weigh the risks against tightening margins and increased competition. While the hope was that there would be enough stability in the region to resume transit within 2025, for many the outlook for return is being pushed out indefinitely by vetting departments and underwriters. Also, what is too often overlooked is the safety and wellbeing of seafarers pressured to transit these increasingly dangerous waters.
In sum, although the atmosphere of the 59th EPCA conference was subdued, the opportunity to gather with partners and vendors does remain a critical tool for our industries. The answers are seldom in the stars, but instead in the continued pursuit of solutions through partnership and relationship building. While the chemical and specialized shipping industries face serious challenges ahead, the industry has been through these cycles before and generally comes out stronger in the end.
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By Patrick Quincannon
President and CEO
Quincannon Associates