US contract polymer prices face downward pressure in 4Q21, with many seeing the second consecutive MoM drop in November. We discuss the near-term headwinds and reiterate our positive long-term megacycle view. We highlight pertinent chemical sector updates (e.g., ExxonMobil, Stepan, Trinseo, Mitsubishi Chemical, Nouryon, Air Liquide, Honeywell & others). We note relevant ESG items worth notice, ranging from EU carbon values hitting a new record this week to renewable industry investment trends. We also highlight our weekly ESG thematic published later today in LINK. We discuss numerous other pertinent chemical sector items in this report.
Western petrochemical prices face downward pressure in 4Q amid lower energy costs and rising availability. We flag other product chains yet to see cost declines and factors keeping commodity prices from an abrupt collapse. We flag pertinent chemical sector corporate updates (e.g., Methanex, BASF, Denka, Cheniere, Petronas, Petrobras, Mitsui Chemicals & others). We note relevant ESG items worth notice, ranging from IEA research on energy trends in France to a circular plastic production push from Sabic. We discuss numerous other pertinent chemical sector items in this report.
Avg. Asia integrated naphtha-based spot ethylene crackers are losing money, while US integrated ethane-based margins are notably higher. We flag near-term trends before a mega-cycle likely develops. We discussed investment trends in China in our recent Sunday Thematic. Though we find investment chasing local growth, we believe that inadequate global chemical growth Capex is positioning the industry for a mega-cycle. Other global commodity trends flagged in this report comprise monomer, polymer, and feedstock indicators relevant to gauging sector profitability.
Plastic waste disposal will need the “catch-all” processes of pyrolysis (and plasma jets) even if at break-even economics – polymer producers will pay for it. Integrated recycling sites – mechanical and chemical – make the most practical sense, but it is not clear who will invest, given generally weak pyrolysis economics. Niche opportunities will exist for some purification and mechanical process and plasma-based medical waste disposal, but these opportunities will likely be local. The imbalance between talk and action with CCS comes down to an unclear regulatory and incentive landscape – once resolved, spending will likely jump. Otherwise, we discuss the haves and have nots of CCS, likely renewable power inflation (again), and the resourcing challenges of ESG management.
Foreign Direct Investment in China hit 2020 annual levels by October ‘21, up 18% YoY. Some of the investment is in Chemicals, despite surpluses and weak margins. While growth in China has slowed, GDP per capita leverage still drives significant local spending gains and chemical company investments target local growth. Current China surpluses result from too many targeting local growth and recent demand growth disappointment, but China will grow into the production. Western companies banking on China demand growth are at risk from a less stable political backdrop and that others will chase the same opportunities. Otherwise, we discuss the evolution of Westlake, carbon pricing, natural gas supply/demand, and why CCS rhetoric is running well ahead of the action.