We note the increasing news on more geographically diverse investments in battery manufacture – see the Canada headline below. With the Intel chip investment in the US and battery investments all over the world, it is very clear that the automakers no longer wish to be so dependent on imports from Asia. In our Sunday Recap (Ship to Wreck: And The Supply-Chain Challenges Continue!), we discussed the possibility of a major wave of manufacturing investment in the US, with some but only a little marginal help from the Biden Administration. The consumer and retailer demand is there for more US content and the supply issues over the last few months have only increased the level of interest in having more local production.
Two thoughts that we published on Sunday:
- The buzz acronym of the year is ESG, as clearly shown in the chart – and we believe that it will become increasingly difficult to get any new investment in the US (and Europe) off the ground without a robust climate-friendly plan, focused on energy use, the product life-cycle and emissions and waste disposal.
- We saw NextDecade strike a deal with Occidental last week to capture and use the carbon dioxide associated with its delayed LNG facility in Southeast Texas. The plant has all of its regulatory approvals and we believe the move was to satisfy some of the potential LNG customers for the facility, who are showing concern around the large carbon footprint of natural gas liquefaction. NextDecade’s move may provide regulators with a precedent as they think about new US investments.
- We should also not underestimate the pressure being placed on investment banks by their stakeholders when it comes to lending standards, and any new US project that requires debt financing (so any project of size), will find that their potential lenders are as tough on them if not tougher than regulators when it comes to environmental footprints.
- This could be good for the chemicals and plastic industry in the US and it would most likely increase domestic demand and make the industry less reliant on exports. Chip manufacture requires many chemical inputs from substrates to photoresists to industrial gases. Many of the other manufacturing opportunities would also consume chemicals and plastics:
- Auto parts
- Household goods
- Medicines
- Packaging or all of the above and other products
- The facility constructions would be good for building-related products such as polyurethanes and PVC.
Given the much lower margins that US polymer exporters are getting versus selling domestically today, higher levels of domestic demand would be a net positive.