Raw material cost inflation is the hot topic today following a few sector 2Q reports, such as the results from coatings producer PPG. This setting should not surprise those following our work, and we flag several early 2H21 trends. This report highlights examples of recent US commodity chemical spot market strength and notes that many derivative profit spreads, such as HDPE-to-ethylene, remain well above 2019 levels and their five-year average. We highlight pertinent chemical sector corporate items (e.g., PPG, Asian Paints, Gangfeng Lithium, Motiva, Trinseo, & other sector producer news). We find ESG items worth notice, ranging from IEA research on global government clean energy spending to a Chevron carbon capture update. Global container freight rates fell on avg. WoW, but remain near record levels. End product price inflation is a significant 2H21 issue for retailers.
Global Butadiene spot prices rose WoW amid upward trending derivative demand and production issues. This report discusses the current setting and why we foresee the global BD market staying relatively tight through 2H21. Global ethylene spot levels increased WoW, with another notable surge in USGC spot values outpacing the appreciation in other major markets. Other global commodity trends flagged in this report comprise monomer, polymer, and feedstock indicators relevant to gauging sector profitability.
Our discussions suggest the inventory build that supply chain disruptions have prompted will peak shortly, but it is unlikely to reverse quickly Investments to diversify supply chains will take time and while we wait we would expect a larger inventory cushion than we have seen over the last decade. Manufacturing investment in the US and Europe would be broadly positive for the chemical and polymer industry but Industrial Gases should do best. While it may be time to fold on the chemical sector from an investment perspective for a while, we are less convinced that historical proxies work anymore We propose a different recycling thesis – one that maximizes pyrolysis and minimizes consumer responsibility – it is more likely to work.
A large, coordinated investor group calls for carbon accounting as a framework for valuing climate risk – it could be global but only for public companies. Meanwhile, litigation is on the rise and while it should not discriminate, public versus private, it is also focused on holding governments accountable. Carbon accounting and auditing are complex: process & chemistry backgrounds may be more important than finance – will this be another skills gap? We launch a new major multi-client initiative on carbon abatement in conjunction with the Power Research Group. Contact us for details.
We recently announced a multi-client analysis on carbon abatement and discuss why we view ourselves as more qualified than most to conduct the work. The barrage of conflicting industry headlines and opinion reports last week on carbon offsets, prices, and equity valuations suggest that our initiative is timely. This report also evaluates the more varied (less unanimously bullish) economic and chemical demand indicators and discusses several potential inflection points. Meanwhile, we find confirmation that 2Q21 may reflect the best margin setting for many commodity producers in 2021 (and possibly for the next few years).