Russia-Ukraine War Pushes Up Gas Prices, Chemical Producers' Profits Under Pressure

Following the Russian-Ukrainian war, the surge in oil prices significantly raised the chemical industry's production costs, thus reducing the chemical industry's profitability. On the fifth day of Russia-Ukraine conflict, the price of Brent crude oil increased dramatically again today, breaking the USD100 mark. Rising upstream prices, according to the industry, will not only reduce consumer demand, but will also reduce profit margins for chemical makers, making it difficult for chemical businesses to pass on higher expenses.

China has surpassed the United States as the world's largest chemical market, accounting for more than 45% of worldwide chemical sales. Oil prices have remained high due to the Russian-Ukrainian crisis, putting downward pressure on downstream chemical profit margins. BASF, Europe's largest chemical manufacturer, is also under pressure from rising natural gas and oil costs as one of Europe's largest energy users. According to the company's most recent release, growing energy costs are expected to put pressure on earnings, and sales and profit projections for 2022 are expected to drop.

Regarding the impact of rising energy prices under the Russian-Ukrainian war on the company's profits, the increase in costs has indeed eroded the profits to a certain extent. As mentioned in the financial report before, further price increase is significant in the next few months to cope with the sharp increase in costs, to achieve the purpose of improving the profitability of downstream business.

As per chemanalyst, “In the coming month, the market is predicted to alter momentum and turn positive, benefiting from high upstream values and tight supply chains. If the war continues, German converters may face a natural gas crisis, as Germany is heavily reliant on Russia for about half of its natural gas needs. High natural gas prices pushed up the pricing of various commodities in October 2021, forcing major firms such as OQ chem, Evonik, and Arkema to hike their product prices to include a temporary energy charge.”