Chemical sector 3Q20 results this week display notable strength in home improvement product demand and global food packaging demand – we see demand optimism continuing in 4Q but rising stamina concerns in 2021. We highlight two exhibits: a) US LDPE integrated margins relative to the five-year range – we discuss our concerns with profit margins despite better-than-expected demand; and b) AkzoNobel paints/coatings volume trends. Other items worth mention range from corporate items (e.g. AkzoNobel, Silgan, Stepan, Avery Dennison, WD-40, LG Chem, Saudi Kayan results), to several price hike initiatives, to the ex-China push for rare earth materials.
Chemical sector 3Q results and 2H20 updates continue to beat stale Street views that in many cases reflect a reluctance to take any action or risk amid historic uncertainty – we approach fresh broad-based optimism with concern. We note numerous corporate and sector items (e.g. PPG, Ingevity, Phillips Carbon Black, Hexcel & Trinseo business updates; Tokai Carbon, MEGlobal & LyondellBasell price hike efforts; global outage & expansion news, etc.) Other items mentioned today range from rising demand for brominated flame-retardant demand from EVs, to more items supporting global tightness in PVC, to our walk around the sector highlighting numerous relevant news.
Polyvinyl chloride (PVC) spot prices hit five-year highs in the US and Asia, and we maintain a positive view of PVC relative to other major polymers. Other items of note: avg. China PVC and caustic soda values both reflect spot price support WoW; Ex-US petrochemical production costs fall WoW; US methanol spot values reflect a growing premium to Asia per our model.
Readers of our Daily work will be familiar with the unexpected boosts to chemical demand and profitability that have characterized 2020. COVID has upended conventional thinking and calls into question any historic proxy. 3Q was better than expected for many chemical companies and better than their own guidance, suggesting many are surprised by the state of the recovery. Recent consumer spending data sheds some light but also raises questions. Our general view is unchanged, but the longer demand is inflated, and prices high, the more capacity will be encouraged – especially in Asia and the bigger the fall will be when demand normalizes. We discuss likely winners and losers.