Today we had earnings reports from both Braskem and Lanxess. It is hard to fault either company for the tones and expectations lined out in today's report. This is an industry where forecasting is generally problematic as there are too many potential influences that are not only outside the control of the companies themselves, but also prone to surprise movements regularly. Who could have foretold COVID and the early impacts of COVID on all commodity and specialty markets. Equally, no-one forecast the rapid rise in durable demand in 2H 2020 the subsequent impact that it has had on global supply chains – and then there is the weather!
Not surprisingly, the data in front of you tends to be the most relevant, and the data in front of these companies today suggests extraordinary tightness in some of the base chemicals and polymer markets and prices that are reaching levels no-one would have predicted a couple of months ago. This is very good for the producers, such as Braskem, and not so good for buyers such as Lanxess. Braskem is not alone in its bullish forecast, and Lanxess is not alone with its expectation that raw material pressure could linger fr a while. This is one of the reasons why we expect this segment of the industry to drive inflation this year – right down the product chain.
But one thing this industry has taught us over the decades is that the status quo never lasts, and in this case, we see a real trigger to drive very different consumer behavior in 2H 2021. Unless the global COVID vaccine program is unsuccessful, it is almost inevitable that consumer spending globally will flip away from material good and towards travel and leisure. This could take the wind out of the supply chain sails quite quickly, with 2H 2021 looking very different from 1H 2021 for the chemical industry, to Braskem’s detriment and Lanxess’s benefit.