Are We Negative Enough on Ethylene?

C-MACC Sunday Thematic and Weekly Recap

Are We Negative Enough on Ethylene?

• Very high shutdown costs are causing companies with more obvious shutdown candidates to pause, even taking losses for years, and to explore possible sales (even paying an acquirer) as alternatives – margins must go lower.
• The oversupply in the global market is evident, and the steepness of the cost curve creates wildly different economics. Optimism for a better 2025 and 2026 is based on incremental operating rate improvements.
• More closures will come, but they will likely timed to avoid a required round of maintenance spending where the capital cannot be justified. Eventually, the costs of decarbonization will drive closures – especially in Europe.
• We take our monthly look at the Ag space and are increasingly interested in it becoming more investable, even if the current data is mixed. Sentiment lows are the time to buy commodities.
• Otherwise, we look at utility issues in the US, declining US natural gas prices, why M&A is slowing in chemicals, the growing hydrogen challenges in Europe, and the promise of CCS

Exhibit 1: We have used this chart frequently to show that nominal margins have been negative in Asia and Europe for several years, yet shutdown activity has been minimal.

Source: Bloomberg, C-MACC Analysis, July 2024

See the PDF below for all charts, tables, and diagrams