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The soaring price of oil is hitting the chemical industry.
On August 29, energy futures resumed trading on the New York Mercantile Exchange following the impact of a major hurricane. Crude oil for October opened above $70 per barrel during the Asian session and climbed to a record high of $70.80. Although it pulled back slightly by the end of the day, the trend remained upward. On August 30, despite the ongoing storm activity, the price of New York light crude oil for October closed at $69.81 per barrel, marking an increase of $2.61 from the previous session.
The surge in crude oil prices has created pressure on the chemical industry, which relies heavily on petroleum as a raw material. With downstream demand slowing, this sector is now facing a challenging environment. Last year, the petrochemical industry was riding high during a peak cycle, and strong downstream demand allowed companies to pass on rising costs to consumers. As a result, chemical product prices surged even higher, benefiting from the oil price boom.
This year, however, the situation is different. The sharp rise in petrochemical prices last year led to a breakdown in the downstream transmission chain. By April this year, the chemical industry faced a backlash as demand weakened under the influence of macroeconomic controls and reduced consumption capacity. Demand growth has slowed significantly, putting further pressure on the sector.
With oil prices entering a prolonged high phase, the petrochemical industry is no longer in a booming cycle but is instead experiencing a decline. According to external analyses, the margin between petrochemical products and their raw materials in the U.S. has shrunk sharply this year. Additionally, global oil demand growth has fallen to its lowest level in three years, signaling a potential turning point in the industry.
In this new reality, the chemical industry can no longer rely on passing on cost increases due to rising oil prices. Price competition is not a sustainable strategy, and aggressive moves to eliminate competitors are unlikely to succeed. Instead, natural market selection will likely reshape the industry. Companies must now focus on internal strength and adaptability.
To survive and thrive, the chemical industry should consider several strategies. First, they need to move away from an extensive business model and invest in technological innovation and better management to reduce energy use and waste. Second, price wars should be avoided, as short-term gains may lead to mutual losses. Instead, the industry should let market forces determine winners and losers. Third, exploring alternative raw materials could open up new opportunities. High oil prices have created favorable conditions for sectors like coal-based chemicals and agricultural by-product processing. Technologies such as methanol-to-olefins and bioethanol may offer promising development paths.
In conclusion, the chemical industry is at a critical juncture. The era of easy profits is over, and only those that adapt and innovate will succeed in the long run.