Chemical Sector Underperformance Is a View Of Tomorrow Not Today; Moving Opposite To Upstream Fundamentals In 3Q24

Daily Chemical Reaction

Chemical Sector Underperformance Is a View Of Tomorrow Not Today; Moving Opposite To Upstream Fundamentals In 3Q24

Key Findings

• General Thoughts: US commodity chemical equities have underperformed the S&P 500, and the chemicals sector YTD – a likely drop in commodity prices, absent more production issues, will not spur its relative revival.
• Supply Chain/Commodities: US spot ethylene production margins are near YTD highs, almost double the level seen at the start of the year, but the equities of producers, such as Dow and LyondellBasell, have underperformed.
• Energy/Upstream: We discuss surging electricity demand growth and how attitudes toward power production and distribution need to change even to come close to meeting it. We also comment on OPEC moves this week.
• Sustainability/Energy Transition: We follow our discussion of the global critical minerals market earlier this week to show surging battery storage use in the US and weak battery material prices, notably lithium, helping its growth.
• Downstream/Other Chemicals: We highlight the recent decline in US mortgage rates and the uptick in active real estate listings in August, which remain below the August levels seen in 2017-2019 but above 2020-2023 levels.

Exhibit 1: US Commodity Chemical and Fertilizer & Agricultural Chemical equities have underperformed the broader market and other S&P 500 Chemical sub-sectors, with Industrial Gases & Specialty Chemicals being outperformers.

Source: Bloomberg, C-MACC Analysis, September 2024

See PDF below for all charts, tables and diagrams