The Weekly Catalyst
Global Chemical Update – The Final Countdown
Key Points:
- Integrated global commodity chemical producer per-unit profits will close 4Q20 at a notably higher level relative to 2Q lows and on a YoY basis – we flag several beneficiaries and our general views for 2021 in this report.
- Other items highlighted in this report: US integrated PE margins remain near the 2020 high; US ethylene and propylene spot values also sit near 2020 highs; Polymer prices broadly reflect support WoW; Methanol on avg. rise on a global scale; US benzene values fall on avg. relative to ex-US levels WoW
See PDF below for all charts and tables
Exhibit 1 – Chart of the day: US spot ethylene and propylene will close 2020 near their highest price points for the year – a plus for integrated derivative producer profit and likely a supportive trend for YoY improvement well into 1H21. This report discusses several 4Q20 commodity price developments that will probably see support into early 2021 and push consensus profit expectations higher before moderating. Take notice.
Source: Bloomberg, C-MACC Analysis, December 2020
- The stand-out observation to start the last week of the year is the notable improvement in US polymer prices and integrated margins in 4Q20 relative to 3Q. We continue to think this development is unlikely fully captured in street expectations for 4Q20 and most notably relative to consensus estimates for 1H21. We view Dow, LyondellBasell, INEOS, SABIC, Braskem, CP Chem, Westlake, Formosa, Methanex, Celanese, Shintech, and ExxonMobil as a few notable near-term commodity chemical beneficiaries. We highlight HDPE integrated margins in Exhibit #35 and #37 to show current profit strength relative to 2Q20 lows and most notably on a YoY basis. While we think a global supply response lies ahead for most commodity petrochemical product chains in 2021, we argue that an inventory restock, slow to develop new production additions, and a continuation of sturdy demand trends will result in positive trends well into 1Q21. We do not see YoY comparisons facing headwinds until 3Q21 on a per-unit basis. The essential item to think about for 2021 is likely the timeline for 2H20/early 1Q21 per-unit profit spreads to erode as increased global supply comes online, and when this will likely erode investor sentiment. We see investor sentiment taking a step higher as positive 4Q result pre-announcements, and early 2021 outlooks post into January. All in, the setting appears supportive for commodity chemical sub-sector equity performance relative to many of its peer sub-sectors as commodity profit views likely trend higher (rather than fall) YoY for 1H21.
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