Methanol may be an exception: USGC margins have faced downward pressure since March – we find signs of stabilization and present our view. 2H 2020 is likely to continue to show volatility – and other commodity items noted today include recent improvement in China SBR prices, weaker European PP and PE fundamentals, and the US July benzene contract. Other relevant sector items of note include oil-and-gas commentary, the continued Aramco focus on crude-to-chemicals, and AI use in waste mgmt.
US Natural Gas prices spike higher amid production concerns and point to support for a flatter petrochemical cost curve – we discuss the market. Two other primary items to think about today: a) polyethylene (PE) price support in China a mix of logistical issues and production constraints; and b) US polymer-grade propylene contracts step higher in June and polypropylene nominations arrive for price hikes – we model tighter 3Q PP-to-PGP spread. Other items of note today range from oil-and-gas news, to views on BP, Ineos, Shell & Enterprise/Marubeni, to the ACC data posted this morning.
Last week we began to see companies positioning their stakeholders for the reality of Q2, pointing to depressed demand and lower expectations for EBITDA and earning – however, there were exceptions; a few companies raising what had been overly cautious guidance. Petrochemical pricing continues to strengthen. The chart of the week is taken from our “Stagnation” piece and shows “at risk” companies – those with high debt relative to EBITDA and with more of a focus on durable end markets. Companies are already downgrading EBITBA expectations. ESG and climate change has been a little lost during the Pandemic but is alive and very well in peoples thoughts – this week L’Oreal has thrown down the gauntlet with the goal of using nothing but recycled plastic by the end of 2020, the most ambitious goal we have seen to date. We discuss.
The spread and re-emergence of COVID suggests that the “one (and done) wave” thesis was hopeful. We now likely must live with COVID and protect against it until a vaccine is effective, available and widely used. Until then we live differently This raises the possibility of economic stagnation for a few years, with government stimulus perhaps preventing a deep recession/depression, but not driving growth. Continued high unemployment globally, credit issues and a subdued/depressed consumer all bode poorly for chemicals. With the possibility of prolonged risks to margins and volumes we would avoid companies with a lot of debt and/or a durable focus. HB Fuller, Trinseo, Olin, ASIX and Axalta would be on our watch-list.