The effects of the Texas outages are far from over, and given some of the very tight supply chains before the storm (see our Sunday recap – for comments on excessive optimism and US customer inventories), there is limited flexibility in the system anywhere and prices continue to rise globally. This is maintaining a trend in the US and reversing some of the trends in Europe year to date and many of the more negative trends in Asia that had resulted from significant capacity additions. The cut back in US polymer exports, especially polyethylene is creating anticipated shortages everywhere and prices reflect attempts by importers to secure alternate supply. However, the pricing rally extends well beyond polyethylene.
Source: Bloomberg, C-MACC, March 2021
One of its likely impacts will be to cause producers all around the world to run harder – note the increased exports from South Korea mentioned today. We have always been big believers in the pendulum effect, and it has generally been a good proxy for global chemical markets – the further you swing a pendulum in one direction, the further it swings in the other direction (eventually). A major global supply response – to exploit higher prices – product substitutions where end markets allow (containerboard versus plastic packaging for durables, for example) – and the eventual full recovery of US capacity and supply, will push the pendulum back – when and how dramatically might depend on how consumer spending habits change as the spread of the COVID vaccine continues.