View from the East – Petrochemical Markets – with John Richardson of ICIS

by | Jun 17, 2025 | Insights, Strategy | 0 comments

Listen to Victoria and John’s Conversation Here:

Is China’s strategic push for chemical self-sufficiency reshaping the global petrochemical landscape? John Richardson, senior consultant at ICIS, joins The Chemical Show to share insights on how misjudged growth expectations for China, shifting demographics, and the rise of state-driven capacity expansions have led to the deepest, longest downturn in industry history. John and host Victoria Meyer examine why capacity was built around hopes for perpetual strong Chinese demand, only for real estate and demographic headwinds to alter the trajectory—creating a world of oversupply, negative margins, and mounting uncertainty. 

Their conversation covers the ongoing impact of trade tensions, the real drivers behind Chinese investment decisions, and why shutting down uneconomical assets is becoming a pressing necessity, especially in Europe and Asia. John and Victoria also weigh the challenges and promises of AI and data intelligence in a conservative, data-guarded sector, and offer advice for industry leaders navigating persistent market disruption. For chemical professionals, these perspectives highlight why adaptability, intelligence, and innovation will be critical in mastering both today’s volatility and tomorrow’s opportunities. 

Discover more about the following topics: 

  • How China’s pivot from growth to self-sufficiency is reshaping global petrochemicals. 
  • Why chemicals face their worst business cycle ever, with Asian producers bleeding money on polyethylene. 
  • How tariffs and shifting policies create constant uncertainty for chemical companies. 
  • Why China’s government-backed enterprises compete on strategy, not just cost. 
  • How data and artificial intelligence will separate industry winners from losers. 

 

“We’ve all assumed that polymer sciences are, you know, composites and stuff and playing with the same basic molecules, but maybe not.”  — John Richardson 

 

More Episodes with John:

Watch Victoria and John’s Conversation on Petrochemicals Markets Here:

View from the East – Petrochemical Markets – with John Richardson of ICIS

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Welcome back to The Chemical Show, where leaders talk business. I am here today with John Richardson, who is a Senior Consultant at ICIS. Those of you who are longtime listeners of The Chemical Show know that John always brings a sharp, insightful perspective about what’s going on across the global chemical industry, certainly with the lens especially towards China and the Middle East and its role in the global chemical business. So John and I are here to have another great conversation about all things chemicals. John, welcome to The Chemical Show.

Thank you very much, Victoria. Glad to be here again.

Yeah, I’m really glad to have you here. So first of all, give me the one minute intro to you because, again, we might have some new listeners who don’t know John Richardson.

I’m a journalist by background, so I drifted into the chemicals industry back in 1997, became a consultant in 2006. So all my stuff is confidential now, of course, I’m no longer a journalist. But what I try to do, Victoria, is to bring a kind of independent perspective to stuff. I try to connect the macro with the micro, if you like. And it’s not rocket science, really. I just talk to lots of people and think about it. I try to network quite, quite often with quite senior people who talk to me in confidence to try and work out what’s happening.

So it’s still journalism really, but more commentary these days, I think.

Yeah, and I can certainly see that. In fact, one of the things I know you’re quite prolific in is writing and publishing your lens on the chemical industry and your lens on what’s going on across China and its relationship to the chemical and petrochemical industry. And of course you publish that a lot on LinkedIn as well as on the ICIS blog. So if people aren’t following you now, they should be because there’s always something good to be learned.

So, John, let’s set the stage. I think I know where we are currently when we look at the chemical industry. But, from where you sit, what’s your view on where we are at this moment in time across the petrochemical industry?

Let’s forget the trade war for the time being, put that aside because materially has it made that much difference? Right, probably not. We are still in a situation where we’re in the deepest trough in the history of the industry, certainly the longest trough, I could argue that around 2008 things were worse briefly before the great financial rescue. But this certainly is the longest trough. And it fundamentally is because people got China wrong. So it’s boring, but we’ve got to remind people that people thought China would carry on growing at 6 to 8% per year across petrochemicals. The growth is less than that. People built capacity all around the world on the assumption China would grow at 6 to 8%.

And it’s much less than that, that’s because of demographics, debt, the end of the real estate bubble. We can see that so clearly. If I could show you 20 margin charts, Victoria, literally flip through every product for North and Southeast Asia showing the turning point was January 2022. It’s remarkable.

So what happened? What happened in January of 2022?

Well, in September or August 2021, you had the Evergrande moment. So the government said we’re not supporting Evergrande, this property developer. And the bubble started really deflating. We had a brief dip at late 2019 where margins turned negative in Asia. Then you had a lack of feedstock from refineries because people weren’t traveling. You had that huge boost for demand from people buying stuff in lockdowns that was made in China, the physical goods we bought. So actually look at the margin patterns in ICIS data.

The margins were excellent in that period of the pandemic. And then of course, markets opened up, people start traveling again, the capacity comes online, operating rates increase and bang, you have the Evergrande moment. And the drip, drip, drip, which has been building for 20 years, 30 years of China’s worstening demographics, that’s a slow motion thing, isn’t it?

So was that being masked up until that point in time? Was it just not known? Because I think now that’s a conversation, right? The fact that China’s demographics, its population is declining over the next decade through the end of the century, what have you.

Yeah, it’s a gradual thing, right? It’s a drip, drip, drip, as I said. I suppose to some extent it was masked by the property bubble. And the other thing I think as well, go back to 2014 when there was stuff in the China Daily and the government run newspapers. They said we are going to be petrochemical self sufficient now. People at the time said, nah, nah, they can’t do that because they don’t have the feedstock advantage. But if you talk to the senior people in the industry, they would tell you well, China’s never really always built plants for profit. It’s strategic.

As this former CEO told me many years ago, it’s about keeping people in jobs in the washing machine factory, by guaranteed supplies of raw materials. And so in 2014 they said we want to be self sufficient in more of these value chains. We’re going to build all these plants. And some people said oh, they haven’t got the cost per ton economics, they haven’t got the feedstock advantage, the rest of it. But that missed that strategic impetus, that drive. Now initially the strategic push was about adding value to the economy. We don’t want to import these raw materials, we want to make them ourselves. Our population is aging, we want higher value industry and increasingly these days it’s actually making higher grades of chemicals and polymers, going more towards specialties away from basic commodities.

But anyway, 2014 we’re going to build these plants, going to be highly integrated, super efficient. We’re putting all this money into government institutions or government bodies that will help us build these plants more economically and build our own crackers, our own reactors. We can build our own equipment without importing it. So now you can build a cracker complex in China which is at least on a capital expenditure basis, 50% cheaper than building one in the US Gulf. But on an operating basis it’s not about necessarily running for profit always, it’s about that self sufficiency. And then you had the first trade war, that’s 2017 or 2018 wasn’t it?

Yeah.

They said, oh my goodness, we’re in a very uncertain geopolitical world. There’s all these shifts taking place. We better push even harder towards self sufficiency. So you have a combination of China building all these plants, you have the Evergrande moment, you have the drip, drip, drip, which is hard to discern on a yearly basis. I know the demographics are getting worse, right? You had that moment, as I said, of things being maintained or margins boosted by the pandemic. And it is quite remarkable. If you look at the margins now post Liberation Day versus before Liberation Day, there is no material change. The margins in polyethylene remain negative on a variable cost base.

Integration, naphtha base, they’re still negative since 2022. If you look at it from January 2022 up to the end of May margins, polyethylene is negative. If you look at January until March before Liberation Day they were negative about the same level. So fundamentally nothing has changed. So we’re in a situation where in order to get back to normal operating rates, that’s the 1992, 2021 operating rates. That’s what I’ll call the chemical super cycle. When operator rates were fantastic. Given that demand is so uncertain and there don’t seem to be many upsides for demand over the next few years, given the situation in China, you have to close capacity down.

Now where that happens, of course, is a big debate. And who makes those decisions?

A couple of things on this that strike me, you talk about the negative variable margins as it relates to polyethylene in particular. I know that we’ve seen that in conjunction with the fact that China in particular is not necessarily making investment in production decisions on the basis of margins in the way that a Western company would. And by the way, I also want to highlight that if we looked at what was going on in the 90s with investment in Saudi and across the Middle East, a lot of that had to do with jobs and did not necessarily have to do purely with profitability and margin, although the Middle East had excellent feedstock pricing basis, so margins were there for a long time. But if we look at this, people sitting in Europe, maybe the US and other countries that frankly China is moving a lot of product to, they view this as maybe price dumping. So they’re concerned about dumping, that their things are getting dumped at low prices and that it actually is anti-competitive from their perspective. Do you think Chinese companies see it the same way? Do they view this as a competitive strategy to go dump product at low prices in other regions just to keep things moving? Or is there a different mindset and strategy going on?

First of all, the cost of working capital, cost of building stuff is cheaper, as I said. The economic incentives are different because it’s state driven. This new wave of cracker capacity which is coming on stream now to 2028, a lot more of it this time around is state owned companies. The previous round was private companies. Even private companies can respond to state signals of cheap capital and please, please export, we need to support jobs. But obviously if you’re a state run company, it’s even more so. The crackers they’re building at the moment are mainly PetroChina and Sinopec.

So it’s just different. They’re not motivated to think in the same way.

Yeah, I think that’s interesting. All right, so let’s talk tariffs a little bit. Or as you noted already the pre-Liberation Day/post-Liberation Day. Liberation days often have different meetings in different places. But we know that the Liberation Day was the Trump US imposed tariffs on everyone, which were quickly put on pause. What’s the view when you talk to leaders in different companies and I know you’re speaking with a lot of people in the East and elsewhere, what’s the view on what’s going on with tariffs?

Uncertainty layered upon uncertainty. Not surprised about that. You have the Liberation Day shock when people thought, is this a Great Depression? If you’re talking about 46% tariffs, I think on Vietnam or Malaysia and Indonesia, these are ruinous tariffs. Nevermind the situation with China. What on earth is happening? And then you have the relief of the pause, you have the panic over China, then your relief of the truce. You have a panic over Europe, then signs of things improving. So what does tomorrow bring? You can’t plan for investment, certainly reinvestment is the question now with chemicals and polymers for a lot of people.

But you can’t plan a business and you don’t know what demand is because the people buying the chemicals and polymers, they’re thinking, well, I will buy smaller lots now. I’ll be more cautious. I don’t know what the effect is downstream on the consumers of the final product. The whole uncertainty is making 2025 look like a pretty much flat year.

Do you think we’ve got overall demand decline or demand destruction, John? I mean, certainly we know that we’re in a period of oversupply. Despite all the shutdowns we’re seeing, particularly in Europe, with a variety of companies announcing closures, which has to do as much with their own energy policies as it does with what’s going on in China and the East. Does your data show that demand is declining? Is it just flat? Where do you see this?

If you talk about China, the problem is getting reliable data out of China for everybody. Obviously the GDP numbers, we know are just a government thing, a political thing. So what’s really happening on the ground is extremely difficult to assess. Just talking to people. Have we got negative chemicals growth in China this year? Probably not, I don’t think, but we’re certainly in the low single digits.

Has that material been affected by the trade war? It’s really hard to say. What we do know, as I said, is it’s a lot lower than it was during the chemical super cycle. I mean, what China’s been able to do in terms of manufactured goods, I’ve just seen the data for May, is they have been able to compensate for a collapse of exports to the US by increasing exports everywhere else. You suspect that will support chemicals consumption. Now on the domestic front, China, the property market showing signs maybe of bottoming out in the bigger cities, but not in the third and second tier cities. Not yet. That’s a long way off.

There’s not going to be the same momentum for growth from real estate as before, so it’s a long answer, I think we don’t know. All we know is low single digits.

Part of the objective for investment is around employment and use of capital and stuff. A couple years ago it seemed like there was a lot of chatter in the news in different media reports about low employment in China, particularly for young adults, recent college graduates,and that’s gone quiet a bit. Is that still an issue? Do you hear anything about this?

Not a very, very, very big problem. I think the real unemployment rates are hard to discern from the official data. But there’s this lying flat phenomenon where people are not driven, not motivated to work as hard because they don’t see the prospects. So it’s a psychological thing. They hear people talk about lying flat. So you stay at home with your parents, your parents have got a very nice condo, if you’re middle class but you can’t afford one yourself because the property prices are still too high and your job prospects are not great.

So that’s that effect on consumption, it’s still there. I don’t think that’s been changed by the trade war. The whole export component side of the economy though of course is now more vulnerable. We don’t know what’s going to happen next. Again, it’s the uncertainty.

Yeah, and we’re all living with that uncertainty, which is really hard. So I’m going to layer in our next layer of uncertainty, John. Uncertainty/opportunity, which is intelligence and AI. And we had a great conversation before we hit the record button just about how we’re each using AI personally, professionally, etc and what that does. So how do you see this evolving? So I think one of the things we said was when we look at success across the chemical industry and who’s really risen to the top, and I think this applies more broadly into other industries, it’s not just about the assets, it’s about the intelligence and the fact that people can have the same steel in the ground and the same bits of information and make different decisions. They can harness AI, can harness other leverages differently. What are you seeing from where you’re at?

Well, the strange thing about AI is how you measure productivity. We didn’t talk about this, Victoria, but it’s very much an individual thing, isn’t it?

Yeah.

So how do chemical companies measure what their staff are doing? Are they using it to go down to the beach, spend less time at work, do the job more efficiently? How do you actually monetize that with people doing the same job in less time, and how do you therefore benefit from that in terms of productivity? It’s an interesting question. But then you think, okay, let’s assume we can start making use of this. We’re living in an incredibly complex world. We’ve got tariffs, we’ve got the impact of longer term of climate change, we’ve got demographics. The old issue of how on earth you estimate demand. What is demand over the long term? How do you build a plan? Existing models for estimating demand are based on multiples of GDP. That probably doesn’t work anymore.

Can we use AI to build long term demand models which are more complex based on variance in weather patterns and migration and demographic spending patterns, all these things? Building a model would be so much more complex that we almost give up. Just too complex. Then let’s go back to the here and now of the sort of medium term. Well, can we use AI to forecast margins, trade movements, trade flows in ways that are much more reactive and complex than ways that we mere humans can do. Can we trust the data? That’s an evolution that I think will happen as people try things out and build greater confidence in these models. As you know, the models learn, don’t they?

Yeah, they do. Now what’s interesting with this, John, is I think most companies view their data as proprietary. So, why is ChatGPT so good at a lot of things, whether it’s writing a book, whether it’s interpretting something, whether it’s writing an email, putting together a menu. I mean, people use it for all kinds of stuff. But one of the reasons that it’s so good and so robust and I think about how it is today versus how it was when I started using it two years ago is because of all the millions of people asking questions, providing insights, doing the things. So it’s gathering up all this data and information to create intelligence, if you will, which is a lot harder to do inside of a company because most companies still view their margins, profitability, demand, supply, all the data that we’ve been talking about today as really proprietary information. And I guess the question is, how does this change and will it change? Do you see a connectedness coming with data to make the industry decision making more robust? Because otherwise you’re still working with just a very limited data set of data.

So I think within a chemicals company you’ve got your way of doing things, you’ve got your special view of a market, your knowledge based on the data. To keep that proprietary it’s going to be very difficult as these machines learn. I mean, there’s an interesting theory of course, is that because you’re worried about AI, you keep less and less of it offline. You start storing your knowledge, don’t put it online at all. Maybe there’ll be a sort of counter movement of people protecting their knowledge. You keep it in note form even, because once it’s online, it’s out there.

Obviously you can put it behind server walls and things which provide some protection. I think that will help. But the thing is then you get AI producing replica or synthetic data which is good enough, it recognizes pattern recognition across numbers. So for a chemicals company, I think it’s a question of time before that develops, it democratizes. So what’s left? Well, it is the interpretation, it is the intelligence, it’s the ability. At least until generative AI comes along.

Until we ask the right prompts, we ask the right questions, we make the machines work for us, do increasingly sophisticated things in much more complex ways than we could have done before. I think that’s the moment when you start really monetizing it from a higher level, if you see what I mean, from a sort of research department level. But as I said, I keep coming back to productivity and individuals in companies. How do you measure that?

Yeah, I would say there’s arguably a debate about whether there is a productivity improvement. There maybe is on finite discrete tasks. But then you go down the rabbit trail, you free up your time and it’s not that you’re freeing up your time so you can go sit on the beach or have a cup of coffee. You’re freeing up your time because you’re asking, what’s the next set of questions that you can do? So I don’t know that I think there is productivity improvement, but it’s productivity so that you can move on to the next topic. And let me tackle this task quickly, because my next task that I’ve got facing me is a bit more complex.

I think that depends on the individual. If you’re that curious person who is always pushing themselves on to the next more complex thing, you’re massively relieved by the fact that you can get the PowerPoint slide done by AI for you or the presentation for your boss, because it’s done in minutes. Isn’t it much better than you could do? But then for some people, oh, I will go to the beach. But for other people, they will push on to the next task. But I think the people that push onto the next task will keep their jobs.

That’s the difference. That’s the shock that’s coming. Well I’m nearing retirement, so maybe I’ll be all right.

You and I both, but we have kids that we need to be thinking about.

Exactly, yeah.

Prepared to be gainfully employed innovators, entrepreneurs, whatever it is, but they have a whole lifetime to live and exceed and excel.

The issue will be for the younger people, certainly how they adapt to constantly innovate. As you say, you do the basic tasks. The more complex tasks become done by AI. How do you move onto the next thing and the next thing? And what is the next thing? The routine stuff just goes, doesn’t it?

And I think that’s maybe appropriate. We talked about this quote I’d seen recently. I wrote it down. It’s complacency kills progress.

It’s easy to become complacent. You say, oh, I know what I’m doing. I’m doing my job the same way, the same time. I’m an expert at this. And then along comes AI because it is systematized, it can become more systematized. And so you have to keep progressing and doing something new and different.

I mean, Sam Altman said, very interestingly, is it the new industrial revolution or is it the new renaissance? Which I thought was interesting because it’s up to individuals then, the Renaissance was about some extraordinary individuals, wasn’t it? Maybe that’s it. It’s up to each of us to do that progress and the machines learn, don’t they? So how it responds to you as an individual is the most astonishing thing I’ve noticed with AI that the same person puts in different prompts and gets different answers. So it’s how you innovate as an individual, which is just a very different way of looking at the world.

Yeah, absolutely. All right, so, John, a final question for you. What should we be looking for? So you sit there, you monitor a lot of stuff, you provide your assessments. As a leader in the chemical industry, what advice are you giving people whether they be milestones or road signs that they should be looking for to help navigate us through the current time that we’re in?

Well, I guess trade war aside, we don’t know what’s going to happen. So let’s look at the other stuff. Any number of options of what could happen. I think short term is looking where we are in the cycle. So the view is maybe things get better by 2028, late 2028. So we’re into this very, very extended down cycle that started in 2022. So you minimize your losses.

You look at all the markets around the world, where can I sell these commodities? What’s the best netback, volume versus price. A commodity producer. Then you start thinking, what is the long term? Will we ever see that tremendous demand boom again, where everything was easy during the chemical super cycle, which is essentially driven by China? There’s an argument that it won’t be. So you’ve got to think, how do I evolve my business? It’s not just all about supply, demand, markets tightening. You know, will we have an upcycle like when we have before? And the longer term becomes much harder.

You can sort of vaguely talk about imperial science aided by AI helping to do with climate solutions. You can talk about all of that stuff. I’m just thinking through that, to be honest, Victoria. I don’t know what that is, but I think you’ve got to have a group of people thinking beyond. It’s just a question of sitting back and waiting things for things, that longer term is much harder.

I probably need to go dust this book off that’s sitting on my bookshelf. The Innovator’s Dilemma by Christensen. And it went through all of theinnovations, you know, the coal ship that was stumped by the steamship. Just these evolutions of these beacons in industry. So the Swiss watch, that was superseded then by digital, which was pretty crappy to begin with, but then became amazing. And now we all wear computers on our wrists that tell us everything.

So I think we are in this period where we have to look at what’s the innovation and how do you innovate yourself for the future because otherwise it’s going to happen to you.

Can we invent a new polymer? Is that possible?

I mean, it’s been done. Why not?

We’ve all assumed that polymers science is a lot of composites and stuff and playing with the same basic molecules, but maybe not.

And I think what’s interesting if we look at innovations in the glass industry. Glass has been around forever, right? Thousands of years probably. I don’t know the real dates on this. And yet these glass manufacturers, Corning and others, continue to innovate. So double pane windows are kind of a standard in many places because of the insulating factor and stuff. They are now rolling out five pane windows. They’re like multi pane, very thin, very thin. They look like a single pane of glass, but it’s much like the glass that’s on your iPhone.

I gotta be honest, I drop my phone regularly unfortunately. And yet it’s been, knock on wood I can’t jinx myself John, but it’s been a while since I’ve broken a screen despite some pretty hard drops. Why is that? It’s not just the case I use, but it’s the fact that the glass has gotten better. So I think we’re seeing innovation in very old materials that we should think about more broadly across the chemical industry. How is it that the glass manufacturers are innovating a new glass when glass has been around forever and it’s cheap. Except for the really good stuff.

Maybe there is a model to a different polymer, different way of dealing with the polymer, etc. That changes the game.

You can try and sort of break out of tyranny of cycles almost. You create your own demand, which if we’re in this very different world of climate disruption and demographics, that’s what you have to do. But immediately, who’s going to shut down? Who’s going to blink first? We’ve got to close lots of assets if we are to get back to decent operating rates. That’s the medium term challenge for companies.

Can we close enough? Are people willing to close enough assets? Because I am concerned that the companies that need to be closing basically end up shutting their doors altogether.

Yeah, and we could see that in Europe, of course. The announcements are extraordinary in Europe, aren’t they? But is that enough in Europe? And what are we going to see in Southeast Asia with some of those less competitive assets in Korea? Those are the questions that we’ve been asking now since 2022, but we don’t have any clear answers yet.

Well, time will tell.

Yep.

John, as always, this has been a really good conversation and one that we could continue on for a long time. But I know it’s the start of your day and the end of mine and this has been great.

Thank you very much, Victoria.

Yeah. Thanks for joining us and thanks everyone for listening. Keep listening, keep following, keep sharing, and we will talk with you again soon.

About John Richardson:

John Richardson is a Senior Consultant at ICIS. John focuses on the polyolefins markets (polypropylene, polyethylene) in China, Asia and Europe. John has been very privileged to work with many of the smartest people in the petrochemicals industry over the last 22 years, helping steer their strategies in the right direction. Without fear or favor of internal company politics and conventional thinking, John provides the objective analysis you need to manage your business in today’s incredibly uncertain world.  

ICIS is the global source of Independent Commodity Intelligence Services. ICIS connects data, markets and customers to create a comprehensive, trusted view of the global commodities markets, enabling smarter business decisions that optimize the world’s resources.