There is an interesting difference between the base chemicals markets and some of the other broad commodities and intermediates, and we have economic growth that is testing the capacity limits for many commodities and downstream products, but the overbuild in basic chemicals, most recently in China, is putting significant downward pressure on pricing, as we highlighted in yesterday’s Weekly Report. Capacity shortages in intermediates and some specialties, which are driving the investments we highlighted in today's daily report and which are a steady flow of news this year, are leading to some expanding margins over base chemicals in select areas where capacity has not kept pace with demand.
Source: Bloomberg, C-MACC Analysis, June 2021
Outside of base chemicals, we are seeing other commodity shortages, where there has not been a recent capacity surge. Base chemicals and polymers have been unique in that the initial capacity surge in the US was driven by an expected competitive edge in international markets and the more recent surge in China followed a closing of the competitive gap and a greater desire to be more self-sufficient in markets that were highly import-dependent and growing quickly. As a consequence, the basic chemical space is one of few that has enough capacity to meet the accelerated growth we are seeing in 2021 and that is expected to continue well into 2022. It is possible that at some point we hit some supply limits of basic chemicals as well, and prices – especially in Asia - start to recover, but demand growth would need to remain very strong as there is still more capacity due this year in China – especially for ethylene and derivatives. See our recent Sunday Thematic - Inventory Challenges Solved Differently Short vs Long-Term
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