Despite improving downstream demand, we maintain a cautious view of Butadiene (BD) markets as new Asia supply arrives – we discuss the pricing strength relative to the US market. We discuss two positive 3Q20 corporate updates (AkzoNobel in coatings, and Element Solutions in specialty/electronics materials) and highlight other corporate news (BASF, Fluor, Air Liquide, Kraton, Eni, SI Group, etc.) Other items worth note range from comments on China PE and PP price strength post Laura facing headwinds, to recent weakness in Asia naphtha, to keeping a close eye on recent tropical storm developments facing the US.
We maintain a constructive view of chemicals serving construction end markets, and we follow Huntsman’s increased 3Q20 profit view for MDI by extending it to 2021/22 – we hold a generally positive view of this market. We flag positive read-throughs from the Huntsman release (and a recent Covestro release) for Dow, BASF, Tosoh and Wanhua, and highlight other corporate news (Bora LyondellBasell, Air Products, Solvay, Worley, etc.). Other items worth note range from commentary on US PE and PP spot and contract price developments in September, to the recent decline in Asia naphtha values, to mounting industry decarbonization initiative news.
Optimism surrounding US ethylene and polyethylene (PE) markets is high per our conversations – we discuss export market and cost curve trends that we find increasingly sounding alarm bells before likely US market reversals. We also discuss the recent US ethylene contract settlement for August, the Westlake Chemical estimate of full production at its Lake Charles production units by early October and other corporate items of note (e.g. AkzoNobel, Chandra Asri, Reliance, LyondellBasell, Sinopec, Total). Other items worth range from global MEG market tightness amid multiple US force majeures, to several global chemical capacity/project updates, to the port congestion issues posed by Typhoon Haishen in NE Asia.
Our analysis suggests that new auto sales will likely be volatile over the next 2-3 years but will be below the levels seen in 2019 consistently, and that only part of the 1H2020 pent up demand will materialize. The surge in used car availability has so far been met by a surge in demand (in the US) likely from delivery services (take out and Amazon) – we think it is a bubble, as is the surge in luxury used car sales likely from rental car inventory. Overall we expect demand for paints and polymers in Autos not to recover to 2019 levels – possibly for ever, if economic hardship intersects with a growth in Taas. We are equally pessimistic about gasoline demand – and while it will grow, it may not see 2019 levels in the US and Europe again. This could elevate propylene pricing into materials that are seeing subdued demand such as polypropylene and polyurethanes