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Many companies will evaluate transaction options over the next few years, but valuation mismatches and unclear regulations could produce significant hurdles.
US oil and gas has, and will have, fewer hurdles than non-US oils and gas and all chemicals and metals, in our view, although we may see asset vs company sales.
European oil & gas companies appear undervalued on a cash flow basis, but buyers will need deep pockets and willingness to focus on assets outside Europe.
Chemical margins have risen with falling oil and gas prices, but the downward pressure remains, and the gap with inputs will close – the US advantage is wider.
Otherwise, we look at ExxonMobil’s ambitious conventional and low carbon plans, the BASF restructuring, blue hydrogen, and failing ESG investing.
Business Transparency & Streamlining Activities Rise Amid Low Margins & Calls For Proof Of Value-Chain Emission Cuts
The recent drop in transportation fuel values has outpaced the decrease in crude oil values, steering attention to chemicals for long-term downstream growth despite its depressed profits.
Global refinery margins fell to a YTD low last week, and chemical margins remained under pressure – both may rise in 1Q24 but likely stay far below their 2021/22 highs absent outages.
We discuss the separation of BASF business lines that will increase value chain transparency and the likely strategic rationale of LyondellBasell’s divestment of its Bayport EO assets to Ineos.
We highlight differences in recent strategic news at Chevron relative to ExxonMobil, estimates of Europe’s battery storage growth, and IEA-estimated global GHG emission trends by country.
North American (and US) chemical rail traffic reflected support last week, which we think will persist into year’s end, though we expect continued chemical price weakness in the near term.
ESG investing is dying, not because of “anti-woke” but because of poor definition
The idea has been focused on making investors feel good versus doing good
Funds that have had an activist approach are also failing – not enough interest
We comment on the COP battle around fossil fuel phase out or phase down
Otherwise, recycling casinos, more CCS interest, SAF, bankruptcy, and lithium
China Exports Deflation! Western Chemical Cost Declines May Not Outpace Product Price Declines for Many
Global commodity chemical prices are under pressure from the drop in crude oil values and tepid demand – it could result in profit declines for some despite the likely input price cost relief.
US non-integrated buyers of “heavy chain” chemical inputs, such as benzene and propylene, currently face higher costs than Asia and stiff competition from its low-priced end-products.
The US ethylene production cost advantage is also exhibited in its lower ethylene prices, which benefits US buyers – the US has cheaper propane than Asia, but more expensive propylene.
We discuss Chevron’s capex budget plans for 2024, recent developments in global clean energy and sustainability, and the Republic Services integrated recycling and polymer production facility.
China’s product exports increased in its latest monthly report. However, volume is lifting China export trade value more than price, which has fallen and signals a trend of exporting deflation.
Tougher Than The Rest – Disruptions Support US Propylene, Oil Price Weakness Favors Lower Global Chemical Prices
Global crude oil price weakness will expedite chemical price declines and likely curb early 2024 forecasts, putting regional buyers of products in limited supply due to disruptions in a tough spot.
We discuss 2H23 US propylene market strength amid continued production issues, which have pushed domestic prices above Europe and Asia, cutting non-integrated buyer competitiveness.
Brent crude fell ~3.5% to below US$75/bbl, and US natural gas fell ~4.5% today, suggesting the production cost curve favors US chemical producers, but global prices face downward pressure.
We discuss the ExxonMobil business update, more takeaways from COP28 and impracticalities facing calls for a phasing out of fossil fuels, and EU CO2 prices falling to a new YTD low this week.
Negative macroeconomic data points and evidence of falling prices are increasing confidence that gov’t interest rate hikes are over, but conditions could notably worsen before they improve.
North America Ethylene Chain Cost Advantage Significant To Asia & Europe, But Not Without Risk Of Turbulence In 2024
The US ethylene production cost advantage is sizable relative to Asia and Europe, and its spot and contract ethylene prices are below Asia and Europe, which is a plus for its derivative spreads.
Crude oil and Ex-US natural gas values rose relative to US natural gas values in 3Q23, boosting chemical prices and US sector profit. Oil and Ex-US natural gas prices have fallen from 2H23 highs.
We foresee downward pressure on global chemical prices moving into 2024 amid more global production and still tepid demand, putting negative pressure on domestic chemical margins.
We also discuss why blue production should be viewed constructively as an enabler of clean product transition and why emission reductions should be more in focus than fossil fuel cuts.
German sentiment toward trade/exports continued to shrink in November, and we flag the surge in US manufacturer unfilled orders but a drop in new orders and weak China macro trends.