Monthly Thematic Piece

Sunday Chemical Recap
March 9, 2020
Products Mentioned:
See Individual Publications
Companies Mentioned:
See Individual Publications
Subjects Covered:
Infrastructure, Energy /Oil Sands, Building Materials, Capital Goods, Shipping, Coal. LNG, Carbon, E&C, Consumer Durables

C-MACC Sunday Chemical Recap No 4

Too Much Noise – Almost Impossible to Find The Signal

Early in this coming week we will publish a short Perspectives piece on the noise we are seeing today and how it is obscuring near and long-term potential trends and their implications for the chemical (but also other) industries.  

Also please note a one off multi-client service that C-MACC is launching today

With the breakdown of the OPEC meeting this week there is concern that crude oil prices could fall dramatically from what are already 4-year lows.  The supply/demand dynamics of the chemical industry are today very dependent on the cost differential between crude oil derived feedstocks and natural gas derived feedstocks.  A flattening of the cost curve could cause a chaotic reshaping of trade flows – especially if combined with a COVID-19 driven step down in demand in 2020.   Our goal is to produce something useful, quickly and cost effectively

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Key Points from the last week

  • Everything was volatile last week, stock prices, product prices, oil prices and sentiment. The short-term movements of everything signal uncertainty and a myriad of different short term behavior.
  • Some companies are cutting operating rates in order to reduce building inventories – this has a weakening price effect. Some are building inventories as a protection against possible COVID-19 driven supply chains disruptions outside China as well as within China. These are all short-term maneuvers but can leave industry participants very confused when prices in one region are moving counter-intuitively to those in another.  As long as we see energy price volatility and sentiment volatility, we likely have a few more weeks of conflicting signals ahead – if oil prices collapse, we have more concerns.
  • Lastly, we would like to remind readers that we published our second “read through” report last Thursday. This filters all of the data and conversations we had in the prior 7 days and offers advice on other related and unrelated industries where we think we can add value.  We are excited about this piece as while some segments of the chemical industry might look a little toxic for investors today – some of the read throughs throw up ideas

Last week, we held fewer face to face meetings – a sign of the times perhaps – but more calls.  Look-out this week for invitations to a series of very interesting and timely conference calls/webcasts that we have lined up with industry executives over the next 4 weeks.

If you are interested in becoming a C-MACC client please contact either Cooley or myself – contact details below.  Note, you do not need to be a C-MACC client to purchase the multi-client service mentioned above.  Additionally, we will offer separate (non-client) pricing for the executive conference calls that we will be detailing later this week

Monday – Weekly Margin and Pricing Analysis

Global Chemical Update

  • The global petrochemical product cost curve flattened WoW, and we think US and European commodity chemical production will increase into 2Q20.
  • USGC ethylene and benzene reflect downward pressure; US integrated PE margins reflect support amid outages, but we see downward pressure ahead.

Tuesday

PE, PP & The Rule of Three

  • US polyethylene and polypropylene strength in 1Q20 is not sustainable – we put forth our case for why US prices are likely to fall in 2Q20.
  • Five corporate items range from the SQM report to McDermott news; the other items today range from Asia LNG hits in Japan to Europe Toluene.

Wednesday

Methanol, Corporate Read Throughs & Other Items

  • USGC methanol values have surged relative to overseas prices and US natural gas – we view the current spreads as unsustainable.
  • Five corporate items range from the Brenntag to Hexion news; the other items today range from India chemical imports to a Porsche battery warning.

Thursday

Precarious Ethylene Prices & The Three Stand Outs 

  • The US contract ethylene settlement for February still leaves the spread with spot prices too high, while spot also look cheap relative to Asia.
  • Three corporate items target Henkel, Elementis and Synthomer; our other items section topics today range from battery materials to W. Canada gas.

Friday

China Time, MDI & The Rise with no Shine

  • China spot values rose across multiple key polymer chains this week amid outages (unplanned and pulled forward turnarounds) – we remain cautious on prices trends in 2Q as supply could abruptly return to the global market.
  • The MDI market is weak and unlikely to support Asia price hikes – our near-term view is cautious, but we are constructive on the medium term.
  • Three corporate items today target LyondellBasell, Shell and Borealis; our other items section today includes an array of topics ranging from Evonik specialty growth, to the US Nat. gas advantage, to the surge in TX safety gear.

Perspectives – Tuesday

C-MACC Perspectives No 5 Margin Call – Pricing Free-fall Likely

We have had a number of questions over the last year or so around whether or not investors benefited from the Dow Chemical DuPont merger and subsequent break up into three companies.  As is often the case, the answer is that it depends! We offer some analysis and opinions in this Perspectives piece

Second Derivative – Wednesday

The 2nd Second Derivative

Every week we scan the reporting, news flow, fundamentals and profitability of the chemical industry and publish our findings every day. This report is primarily designed for our institutional investor clients and looks for “read-through” for other industries from what we have uncovered. The goal is to publish once a week and only on issues that are relevant.

Industries/Sectors Mentioned: Consulting and Data Providers, Manufacturing, Drug ingredients,

Infrastructure, Energy /Oil Sands, Building Materials, Capital Goods, Shipping, Coal. LNG, Carbon, E&C, Consumer Durables