A couple of weeks ago we raised the idea that US methanol could be a significant beneficiary of the conflict in Central Europe, not just because it is very economically unattractive to make methanol in Europe, but because it might be possible for Europe to import methanol for its energy value - $40 per MMBTU natural gas can make all sort of alternates look attractive. The impetus behind the methanol spot price increase in the US may be in part rising local natural gas – or the fear of further increases – but export demand is likely the larger driving factor and this could continue or even increase further if potential European importers work out how to convert to use methanol as a fuel.
Source: Bloomberg, C-MACC Analysis, March 2022
Otherwise, there are an increasing number of headlines around near-term price increases, both for chemicals and other materials – and we see steel prices moving up in Europe and in the US, which fits well with one of the major topics in our ESG and Climate report yesterday – the likely strong demand for all materials behind, energy security, energy transition and re-shoring, regardless of whether we see a consumer spending led recession over the coming months. While consumer durable demand could fall, we still have significant supply-chain bottlenecks (the fridge that we wanted for the new C-MACC office was not available until late May, for example), the conflict in Ukraine will make everyone think twice about what makes sense from an inventory cushion perspective, and industrial demand could remain strong. Overall, we see this as bullish for chemicals and plastics and especially in the US where there is close to an all-time high raw material and energy cost advantage. While Asia polymer prices are slowly recovering relative to US prices – because they are being aggressively pushed up by local costs – they remain well below US prices that are also seeing some upward price movement because of demand and cost increases. For this market to “normalize” Asia prices would need to move even higher, but US sellers can comfortably move products into the region today and make good margins given the cost edge.
Source: Bloomberg, C-MACC Analysis, March 2022