Clearly, as a direct consequence of our shortage theme this week, ExxonMobil announces a large new complex in China is through FID. This may be the company rushing something ahead before tighter restrictions are imposed or it may be an indication that with a 2060 net-zero pledge China is going to let things slide for a while. We would not be surprised to see ExxonMobil face some bad PR around this project if there is not some emission abatement plan with it. The facility will give ExxonMobil some further integration – effectively consuming equity hydrocarbons – but, if the company is setting itself up for criticism for investing in jurisdictions with lower emissions standards, this could backfire. It is also a very counter-cyclical investment given the poor profitability seen in the region right now (chart below) and as we discussed in our Sunday Piece - Waiting For The Big One – Is A Chemical Mega-Cycle Ahead?.
Source: Bloomberg and C-MACC Analysis
If our Sunday thesis is correct, this ExxonMobil project could arrive at a time of more limited availability of polymers relative to demand. The flip side is that the company could spend the next 18-24 months second-guessing the plan, especially if the real estate issues in China drive even lower economic growth in 2022, as the current chemical and plastic surpluses in the country could look quite grim for a while, depressing prices and margins.