The market response to the Chevron Gevo announcement supports the view that viable options for major companies to counter ESG trends are limited. The deal was perceived as good for Gevo and immaterial for Chevron. We discuss other ESG efforts, such as those from bp, that have seen no market appreciation. Some energy companies are too big to change quickly or meaningfully toward more ESG friendly businesses – some chemical and polymer companies are similar. Trimming valuable side businesses and pursuing large-scale mergers may be one of the only ways to unlock value – EBITDA from synergies vs than CAPEX/M&A. In the West, chemical producer profits are historically strong, providing a false sense of security. A “first-mover” large-scale merger today might gain support.
US polyethylene (PE) values have surged relative to Asia in 2021. We flag an array of factors to consider in late 2021 that put US premiums at risk. We highlight pertinent chemical sector corporate updates (e.g., Albemarle, Dow, Westlake, Mitsui Chemicals, Avantor, Aramco, Sinopec & other items). We highlight our latest ESG weekly research and numerous other ESG items worth note, ranging from proposed taxes to new technology updates. We note numerous other pertinent chemical sector items in this report.
US commodity chemical per-unit margins incentivize a quick production return following Hurricane Ida. This report discusses mixed signals coming from several key markets that may signal intermediate price declines in 4Q21. We highlight pertinent chemical sector corporate updates (e.g., Celanese, Repsol, Shell, Chevron, Gevo, Dow, BASF, Nouryon & other news). We compare US total rail traffic to US chemical rail traffic, flag several relevant NGL market statistics, and discuss commodity chemical trends. We flag several ESG items worth noting, ranging from multiple Chevron partnerships to highlighting our latest ESG weekly research that discusses the challenges facing new routes to conventional polymers. We note numerous other relevant chemical sector items in this report.
New production routes, including renewables, to conventional polymers, are complicating an already opaque picture of the best course for the plastics industry New and low carbon polymers do not address plastic waste issues unless large sub-sectors can switch to compostable polymers with consumer buy-in Most new technologies are largely untested, and almost all untested at scale, and for several, feedstock availability may challenge reaching scale economics In some cases, valuations already factor in success and not much risk, and we question whether some can deliver on their promises and on time Otherwise, we talk about hydrogen, carbon offsets (and the possible value of direct air capture), aviation fuel, ESG activism, & the geopolitics of climate change
US ethylene production costs relative to Asia reflect more benefits from the YoY surge in higher co-product values than lower feedstock costs – this looks fragile. The potential for regional co-product prices to “normalize” in 2022 is high and holds more risk than weaker US feedstock (oil vs. gas) ratios – we frame our case. Considering still robust natural gas/LNG demand, US chemical and polymer exports will likely grow but drive more marginal returns in 2022 than 2020/2021. Freight rates will need to correct meaningfully for relative prices to normalize – we do not see that happening this year but think the correction occurs in 2022. Otherwise, we discuss Hurricane Ida as a near-term support factor for US prices, inflation in all things climate-related, and still notably positive refining margins.