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what we are talking about today

Daily Chemical Reaction

This is not the time to be driving while focused on the rear-view mirror

Two major items stood out to us this week: a) corporate 2H forecasts showed notably more caution than that given with prior 2Q20 reports; and b) the market is shifting quickly, and we found some major mistakes made by companies that in our view resulted from the use of stale consulting data/commentary. In response to it, we saw a pick-up in demand for our work. We have issued multiple free Aug. trials – email us to be added to the trial list if you are not a full-service subscriber.
We published perspectives research last week targeting the auto market – an important chemical end market that is likely to face stiffer demand headwinds in 2H20 and 2021 relative to most expectations and this may keep some chemical product chains from snapping back to pre-COVID peak levels until beyond 2021.
We tend to find comfort in the chemical chains/stories that are already “down and out” and where everyone seems to know it, such as in acetyls and methanol. We more cautiously approach market segments that have seen COVID-19 spurred demand (and price/margin strength), such as in packaging and disinfectants (see our IPA/acetone comments below), and those set to face raw material headwinds in 2H20, such the buyers of propylene. Indeed, we find volatility across the chemical sector poised to stay high into 2021. Reach out to us for advice.  

2Q20 Earnings – Many Risks Being Taken With Outlooks; Supply Chains Far From Normal

Early 2Q earnings reports gave outlooks that appeared too optimistic but we find more balance this week – we argue that those setting cautious expectations should see better relative equity performance into 2021.
We discuss several sector earnings reports (e.g. AdvanSix, LyondellBasell, W.R. Grace, ICL, PQ Group & Reliance Industries) to close the week.
Other items today range from China spot acetone prices retreating after a 1H20 IPA/disinfectant fueled surge, discuss the China PVC and caustic soda price setting and a mixed setting for Albemarle amid a few peer reports.

Thoughts Before The LyondellBasell 2Q Report

We discuss our views of the likely most and least appreciated items facing LYB with its 2Q20 results based on peer reports and commodity trends. Looking at Valero’s numbers this morning there could be some major inventory valuation adjustments at LyondellBasell
We discuss multiple sector 2Q20 earnings reports (e.g. DuPont, Methanex, Axalta, Kraton and Sekisui among others) and find mixed 2H expectations.
Other items today range from HH Natural Gas forward curve trends, to a higher Aug. US Butadiene contract prices that follows global strength in BD spot markets, to an EU Council decision to charge for plastic waste.

what we are saying about tomorrow

C-MACC Scenarios & Persepctives 

Auto Industry Recovery – Important For Chemicals – Unclear

Our analysis suggests that new auto sales will likely be volatile over the next 2-3 years but will be below the levels seen in 2019 consistently, and that only part of the 1H2020 pent up demand will materialize.
The surge in used car availability has so far been met by a surge in demand (in the US) likely from delivery services  (take out and Amazon) – we think it is a bubble, as is the surge in luxury used car sales likely from rental car inventory.
Overall we expect demand for paints and polymers in Autos not to recover to 2019 levels – possibly for ever, if economic hardship intersects with a growth in Taas. We are equally pessimistic about gasoline demand – and while it will grow, it may not see 2019 levels in the US and Europe again.  This could elevate propylene pricing into materials that are seeing subdued demand such as polypropylene and polyurethanes

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