We are experiencing a perfect storm for chemical pricing. The supply chain dislocations are causing buyers right down the chain to think about both supply routes and how much inventory they should hold (we would expect a general working capital increase across manufacturing and possibly retailing over the next 6 months – price and volume-driven). The risk of over-buying is high, and, for example, plastic buyers may be pressing all suppliers for contract maximums, in the hope that one or two can deliver. Things will change when four or five deliver in the same week – unlikely before late 2Q 2021 in our view. When you add the supply chain issues to rising oil prices and the US base chemicals and polymer production issues, you have a global tight market that is expressing itself most aggressively in the US and creating some of the extraordinary trends in the charts we highlighted in today's daily.
A rule that has been hardcoded into the chemical industry is that you raise prices when you can and for as long as you can, as the opportunities for you to do so have historically not been matched by the opportunities for your customers to demand, and get lower pricing. In our Sunday recap this week, we will put some of what we are seeing today into a much longer historical context as it may be the late 1980s when we last saw pricing this high for US polymers while costs were this low.
Asia, while impacted by the lack of supply of some material from the US, could not have started up its new capacity at a better time as the demand-pull is seeing less competition from the US and allowing the new producers to make money despite the jump in supply.
