We discuss automotive market headwinds (Hertz bankruptcy, falling used car values & rising US consumer negative vehicle equity scores) that we view as negative for chemical demand in a few key areas – we frame the issues. North America methanol contract nominations for June reflect significant premiums to US and Asia spot methanol values – we remain unconvinced. Other items of note today range from oil-and-gas commentary, to strength in some chemical chains that are being helped by recent supply curtailments, to lithium producers waiting out pandemic for the EV revolution to resume.
We discuss recent US polyvinyl chloride (PVC) market price support that we view as a plus for USGC producer integrated profit into late 2Q20. An outsized positive for Westlake. We note Celanese acetyl-chain price hike announcements – the upward trend in China spot values since early-to-mid April offers support in our view, but the macro backdrop does not. Other items of note today range from oil-and-gas commentary, to global butadiene price moves, to increasing hopes on an automotive recovery.
Asia Butadiene (BD) values reflect a five-year low relative to naphtha and BD derivative values reflect little sign of improvement – this suggests ethylene cracker operating rate issues in Asia and Europe are persisting. We highlight weakness in China caustic soda values while PVC values rising – we see this setting as more beneficial to Westlake relative to Olin. We discuss multiple global corporate releases (Dow, Sekisui, Air Products, Cepsa & JXTG) and thoughts on recent events (Dow & DuPont). Other items of note today range from oil-and-gas commentary, to mixed Asia petrochemical output, to a new EV launch in China.
A slow recovery for Chemicals will likely cause mismatches in production versus demand, creating price volatility and at times spot markets could reflect very incremental thinking, resulting in “acceptable” losses rather than plant closures. Recently, we have seen significant price and margin volatility all over the world as supply imbalances create short-term anomalies; we expect these to continue until the markets find a balance – in our view these are all trading opportunities. We will continue to highlight markets with pockets of volatility developing in our research – let us know your questions or areas of specific interest.