More confirmation from Covestro that global demand growth is strong, supporting reports that we have seen from most companies over the last few weeks. Some have struggled with raw material cost squeezes and either late attempts to raise prices or pricing lags in contract agreements, but almost all have pointed to very strong demand outside of auto OEM. We have questioned how much of this strong demand is inflation-driven, but it is very hard to tell as the last time we had significant inflation we did not have such an interwoven global supply chain as we have today, and consequently, it is harder to assess how much pre-buying may be going on, not because of fear of higher prices but because of fear of supply. Note that we have at least two European automakers (VW and Renault) shutting down facilities this week because they cannot key parts from Ukraine. This adds to the already problematic path for parts from China as well as the semiconductor shortage. If everyone is looking for a little bit more it would explain the very high 1Q 2022 demand that all are talking about and it likely means that inflationary pressures will continue as chemical and polymer makers try to make more, against a backdrop of higher raw materials and find it easier to increase their prices because their customers are as concerned about availability as they are prices.
Source: Covestro – 4Q21 Earnings Call Presentation, March 2022
With the energy shortages in Europe and the lower natural gas prices in the US, we would expect there to be an opportunity to move more US-produced material to Europe as the margin arbitrage is large and expanding – assuming you can find the ships. With LNG capacity at full rates, we wonder whether methanol could find use as a fuel in Europe in the near-term – opening export opportunities for the US and possibly leading to higher US margins. See more in today's daily report.