Global Cost Curve Shifts Drive Recent Profit Variances – US Ethylene Advantage Rises, Ammonia Advantage Lessens

Daily Chemical Reaction

Global Cost Curve Shifts Drive Recent Profit Variances – US Ethylene Advantage Rises, Ammonia Advantage Lessens

Key Points

• US integrated polyethylene (PE) producer margins reflect strength relative to the global avg. producer margin in 4Q23 – US PE prices have fallen, but its production cost has declined more.
• The recent decline in European natural gas prices is lowering its production costs for ammonia, methanol, and Chlor-Alkali relative to still advantaged US levels and favors lower Western prices.
• We discuss weakness in China’s lithium prices and rising news flow about EV producers cutting prices amid falling costs to spur demand, a potential headwind for critical mineral expansions.
• We discuss the outcomes from COP28, emissions (not fossil fuels) being the enemy, and the challenges of creating a “fair” carbon price that shifts industrial- and transport-level behavior. 
• US farmers are likely to shift plantings more to soybeans relative to corn in 2024, a near-term headwind for ammonia, though implied corn support will be constructive in the medium term.

Exhibit #1: Falling input costs relative to the global avg. benefits US integrated PE margins in 2H23.

Source: Bloomberg, C-MACC Analysis, December 2023

See PDF below for all charts, tables and diagrams