Global Market Analysis

Producing Local To Serve Local Has Benefits; Will The Benefits Of This Model Further Erode Relative To Risks In China?

September 27, 2024

Daily Chemical Reaction

Producing Local To Serve Local Has Benefits; Will The Benefits Of This Model Further Erode Relative To Risks In China?

Key Findings

General Thoughts: We are generally fans of the BASF integrated approach to chemical production in areas that serve regional/local customers – we see risks facing this approach rising, especially in high-cost areas and China.
Supply Chain/Commodities: We discuss the start-up of the China Yulong refinery and petrochemical complex, which reflects above-average chemical production yields, and add a few views from BASF’s capital markets day.
Energy/Upstream: We discuss the recent weakness in global refinery profits relative to ethylene profits amid the energy complex shift to more chemical production and flag further evidence of producer backward integration.
Sustainability/Energy Transition: We discuss the significant demand for EV leases in the US, where an incentive loophole allows for greater buyer selection across overseas markets relative to slower EV full-ownership demand.
Downstream/Other Chemicals: We highlight C-MACC’s upcoming events with Dragoman to discuss China and global markets, and we provide a few thoughts ahead of a potential US port labor strike targeted for October 1.

Exhibit 1: The global cost curve to produce ethylene still reflects sizable advantages for North American producers but has flattened in 3Q, as crude oil and ex-US naphtha values have declined relative to US natural gas and USGC ethane.