This week we published Perspectives research on ESG investing and climate change, which are connected but a little different, in that the climate change lobby has a lot more consistent data to work with then the ESG crowd – for now. We will follow this research with work during the next few weeks that targets “the Hydrogen Economy” and plastics recycling – both of which are evolving quickly. The November election in the US could alter the terrain for the subjects outlined above – probably under the umbrella of emission reductions and pollution more broadly, but even if the politics remain unchanged in 2021, public and stakeholder pressure will likely have an increasing impact and any corporate who ignores this development faces a greater risk of falling equity values and more expensive debt. This week we continued to see Laura driven spikes in polymer prices as production remained curtailed in the Lake Charles area – mainly because of power issues. With feedstock costs also lower MoM – again because of Laura driven demand cutbacks, Sept. will give (short term) windfall profits to the polyethylene and polypropylene producers operating. But sharp reversals likely lie ahead.
We discuss the global polypropylene (PP) market following the announced start-up of new Braskem production capacity at La Porte, TX – tight US and global market conditions will likely welcome more production near term, but the medium-to-long term market looks over-supplied and less profitable. We highlight the Dow polyurethane contract price hike nominations for October, the DuPont divestment of its Hemlock Semiconductor JV stake, and other corp. items (Braskem, Honeywell UOP, Map Ta Phut, Kraton, Solvay). Other items worth note range China Butadiene exports, to recent PET market developments, to US lumber prices approaching record levels.
We expect the US market for ethylene and derivatives to follow the same pattern as Asia, with a delayed peak and subsequent decline. The Asia strength pulled up the US market, but its subsequent slide has been met with short lived production outages in the US, prolonging the US rise. 4Q could be quite different. We continue to adopt a more negative forward economic view than those circulated by the widely recognized institutions during 2Q. We would expect updates reflecting the aggressive and persistent nature of COVID and its impact on both mobility and buying habits. New ethylene and derivative capacity is starting up in China during this quarter and it is likely to meet markets that do not need it yet. The analysis focuses on the monomers and it is possible that more competitive polymer markets will have a great impact on integrated profitability than moves in ethylene and propylene