Daily Chemical Reactions

Schuhplattler! – BASF Preliminary 4Q Results Beat Street View, Global Chemical Sector Optimism High
January 20, 2021
Commodities Mentioned:
Natural Gas/NGLs, Crude/Naphtha, Methanol, Plastics (PVC, PP, PE, PS, PET, etc.), Ethylene, Polyethylene, Polyurethanes, Lithium, Hydrogen, Trichloroethylene, Hydrochloric Acid
Companies Mentioned:
Air Liquide, Orsted, Arburg, Ashland, BASF, Braskem, DOMO, Equipolymers, FMC, Ganfeng, Johnson Matthey, Kemira, Lanxess, Highly Innovative Fuels (HIF), Mabanaft, Olin, OMV, Orbia, Oriental Aromatics, Trammo, Yansab, Dow, Methanex, Paccar, ASML, Fastenal Company

Daily Chemical Reaction

Schuhplattler! – BASF Preliminary 4Q Results Beat Street View, Global Chemical Sector Optimism High 

Key Points:

  • BASF preliminary 4Q results beat Street expectations and add credibility to several recent constructive peer updates. As sector confidence grows with 4Q20 postings, durability concerns with profit levels will lag and likely rise.       
  • We highlight multiple corporate items (e.g., Oriental Aromatics, Yansab, FMC & BASF business updates; Air Liquide, Arburg, Ashland, Trammo, Braskem & OMV strategic updates; Olin & Kemira facility updates)  
  • Other relevant items within this report include a view of ex-US naphtha values relative to USGC ethane, estimates of global spending on the green energy transition, & charts of semiconductor supply serving the auto market.  

See PDF below for all charts, tables and diagrams

Exhibit #1: Asia spot methanol values have increased relative to US levels since the start of 2021 due to increased North American supply. We flag recent trends in China and US spot levels and highlight current spot profit trends in each region in our research today.

Source: Bloomberg, C-MACC Analysis, January 2021

Three primary items to take note of today: First, 4Q20 commodity and intermediate profits appear likely to exceed lagging Street estimates notably. We have highlighted this theme in many of our reports recently. We use the BASF preliminary results this morning as evidence that a lagging Street consensus increase will likely result in many chemical sector 4Q20 results exceeding expectations. To set the stage per our view, BASF preliminary 4Q20 adj. EBIT beat the Street consensus estimate by roughly 30%. In comparison, sales exceeded the average estimate by ~9%, and the report came after several 4Q20 guidance updates (Huntsman, etc.) that suggested a better-than-expected reporting season for peers. BASF 4Q20 preliminary results display strength in its Materials, Chemicals, and Industrial Solution segments but weakness in Surface Treatment (likely the result of auto weakness).On the whole, we see the release as a positive for polyurethane peers, such as Dow, Covestro, Huntsman, and in broader intermediates, such as Eastman, Ashland, and Arkema. Second, we highlight a recent demand-pull on both Ex-US naphtha and USGC ethane, which has worked to hold the relative price levels seen since late 2020. The spread remains much lower YoY, as can be seen in Exhibit #2. Third, we flag a few notable global methanol market trends. We highlighted Mitsubishi Corp start-up of a Trinidad and Tobago methanol plant yesterday. Today, we show the decline in US spot methanol values since the start of the year in Exhibit #3, relative to Asia values in Exhibit #1, and compare US per-unit profit levels to China in Exhibit #4. We continue to view the profit setting as notably positive for North American producers, such as Methanex, SCC, Natgasoline, Celanese, and Mitsui Chemicals. And, we flag recent support in acetyl chain metrics as also a broad-based plus. Altogether, our research today highlights higher YoY chemical sector prices and profit and evidence of rising production.  

Exhibit #2: Ex-US naphtha values have recently risen with crude oil values and improved demand due to Asia ethylene cracker restarts, while US ethane demand is also improving as a result of favored light-cracking, higher USGC cracker run-rates, and broadening market pulls. See news of the US ethane tanker loadings at the Orbit facility above. All in, Ex-US naphtha values have remained at a similar level relative to US ethane seen in late 4Q20 but lower YoY.

Source: Bloomberg, C-MACC Analysis, January 2021

Exhibit #3: US methanol spot values have declined during the past three weeks amid increased supply

Source: Bloomberg, Nexant, C-MACC, January 2021

Exhibit #4: US methanol margins reflect levels seen at the start of 2020 and well above the 2019 and 2020 averages. China methanol margins have also recently improved and closed the relative spread with the US.

Source: Bloomberg, Nexant, C-MACC, January 2021

Exhibit #5: Another record for Green energy investment in the year 2020. Also, see LINK.

Source: BloombergNEF, Adezenoso.com, C-MACC, January 2021

Exhibit #6: We highlight the exhibit below to show automotive-semiconductor demand by core segment – see the full report in LINK – and to accompany the news items above, Exhibit #7 and further detail on this industry in the McKinsey report Mobility trends: What’s ahead for automotive semiconductors

Source: McKinsey, Intrinsix, C-MACC, January 2021

Exhibit #7: Electronics are estimated to account for more than 40% of a vehicle’s cost per the report titled An Automotive Value Chain In Flux that displays the flow chart below to highlight the significant auto semi players

Source: Semiengineering.com, C-MACC, January 2021

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