Sunday Thematic & Weekly Recap

Commodity Chemical Fundamentals Have Become More Difficult To Model Accurately; This Is Not A Good Thing!
June 2, 2024
Commodities Mentioned:
Polyethylene, Ethylene, Ethane, Polypropylene, Propylene, Propane, Polystyrene, Benzene, Methanol, Ammonia
Companies Mentioned:
Trinseo, LG Chem, Toray, SABIC, Borouge, Hengli, Petronas, Westlake, Dow, LyondellBasell, Satellite, NEOM

C-MACC Sunday Thematic and Weekly Recap

Commodity Chemical Fundamentals Have Become More Difficult To Model Accurately; This Is Not A Good Thing!

  • Resource constraints and increased costs of what looks like less accurate data have made modeling commodity chemicals earnings more challenging for many – the issue of “bad inputs, bad outputs” is an increasing concern.
  • In our view, data provider consolidation, less vigorous unbiased analysis, and falling sell-side analyst incentives for quality research have created a setting of less reliable views and more risk with chemical earnings reports.     
  • Many chemical sector stocks presently look expensive on an absolute basis, especially in the face of weaker fundamentals, but all look very cheap in an inflated market. We all know about the last bubble correction!  
  • The US cost advantage looks intact but concentrated in natural gas and ethane-based chemicals. There is some advantage in propylene but less, and zero advantage in benzene, with the US short and octane values high.
  • Otherwise, we look at some ethylene producers in Asia in less trouble, the huge value of discounted crude oil if you are integrated back into a refinery, and why the World needs carbon capture and possibly very quickly.

Exhibit 1: Some of these stocks are not cheap based on earnings and revisions, but all are cheaper than the broader market premium.

Source: Bloomberg, C-MACC Analysis, June 2024

See PDF below for all charts, tables and diagrams


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