We have talked at length in today's daily and recent Sunday recaps about our expectation for a mega-cycle in chemicals because of an unwillingness to deploy capital as uncertainty rises. The exception is likely to be large oil producers looking at long-term downstream integration plans, with the primary objective of consuming captive crude oil. The Aramco ambitions in China bear some similarities to the ExxonMobil investment announced for China last year. While the crude oil market may be tight and prices may be high today, few oil producers believe that demand will not ultimately be hurt by renewable penetration and EV and hydrogen growth as transport fuels. Looking for captive crude oil demand is a logical step for the major and it is likely that the Aramco ambitions include refining as well as chemicals in China.
Source: Bloomberg, C-MACC Analysis, March 2022
As we noted in today's daily report, prices for polymers are rising rapidly in Asia in response to the higher input costs. It is interesting to note in the Exhibits (above and below) both the negative margins in Asia – despite the price increases, and the relative stability of the US monomers markets. US ethylene prices are relatively flat, because costs are fairly stable, but the arbitrage to export is high and if there is any spare terminal or vessel capacity to export from the US, local spot prices could be bid higher to fill cargoes – prices can go a lot higher in the US and still create an export margin.
Source: Bloomberg, C-MACC Analysis, March 2022