Recently, BASF showed publicly that earnings before interest and tax (EBIT), excluding special items, would fall 47% in the second quarter as production and profit margin were negatively affected. BASF performance warning flying out of the "black swan", in fact, is not an individual case. At present, growth in the global petrochemical industry is slowing sharply. Global industrial development is under considerable pressure affected by the trade war, the slowdown of economic growth, the opening of new production capacity and the slowdown of Chinese demand.

The slowing economy has led to a drop in demand. Demand in the main chemical value chain has been falling for months. BASF believed this will continue into the second half of the year. The trade war between the US and China has dented global market popularity. Consumers are hesitant to buy big-ticket items like cars and electronics. The latest purchasing managers' index (PMI) data, released in early July, showed that China's economic growth was slowing while Europe slipped to 47.6 for the fifth consecutive month. As the PMI showed, no region of the world was immune from the effects of trade war as it was so widespread.

On the supply side, the increase of production capacity led to excess supply in the chemical value chain. For example, from 2017 to 2019, eight new cracking units will be put into production in the United States, and ethylene capacity will increase by 10.8 million tons per year, up 38%. During the same period, PE capacity will increase by 6.5 million tons per year, up 41%. AnXunSi data showed that chemical production margins have been falling. At the end of the second quarter, profit margins for major petrochemical and plastic products were down sharply on year-on-year basis.

Tighter credit in China is also a major factor. Major chemicals markets have been declining since China began a massive tightening of credit in the early of 2018. The slowdown accelerated in the mid of 2018 as the trade war intensified. Authoritative data showed slowing demand for chemicals in China, narrowing difference in price of chemical and raw material cost, and changing trade flows.

Globally, the pressure on the downlink of chemical industry is considerable. Chemical executives should face major uncertainties from trade wars, oil price volatility and sustainability.