Ethylene and Lithium Similarities: Too Much Supply and Investment; Cost Position is Critical!

Companies Mentioned: ExxonMobil, LG Chem, SQM, Westlake, Occidental, Celanese, BASF, LyondellBasell, Nova Chemicals, Rio Tinto, Vulcan, Navigator Gas, Albemarle, E3 Lithium, BP, OMV, Northvolt, CATL, Neometals, Bosch, Walmart, Target, The AZEK Company
Commodities Mentioned: Lithium, Ethylene, Polyethylene, Alumina, Crude oil, Natural Gas, LNG, Cobalt, Nickel, Steel, Copper, Aluminum, Palladium, Platinum, Manganese

Key Findings

General Thoughts: Market developments suggest that in the medium- to long-term, US merchant ethylene buyers will see their advantage shrink relative to buyers abroad as the relative benefits for US ethylene producers grow.
Supply Chain/Commodities: We discuss SQM 3Q24 results and their continued push to grow lithium capacity despite recent price weakness – we see challenges persisting for those with high-cost global production positions.
Energy/Upstream: We highlight US natural gas prices relative to Europe and Asia and our positive view of supply keeping domestic prices relatively low despite demand, especially for power, likely exceeding most expectations.
Sustainability/Energy Transition: Most medium- to long-term critical mineral demand outlooks are bullish. Still, the current oversupply raises concern about some seeking to serve this global market, such as battery recyclers.
Downstream/Other Chemicals: We discuss recent weakness in global freight rates, following their brief rebound after hitting 2H24 lows, and trade and tariffs before our Sunday thematic on this topic as it relates to polyethylene.