In our Sunday Thematic to be published this weekend we are focused on business lines that will still look good in an economic turndown versus those that are more vulnerable, and ASIX may find itself spread across both buckets. The momentum in agriculture is very strong and even with a quick resolution in Ukraine, we could see high prices for crops and farm inputs for years as it will take a long time to correct recent imbalances and the Ag markets were already tightening before Russia invaded Ukraine. This and natural gas shortages (see today's daily report) should keep upward pressure on ammonia and ammonia derivatives pricing. On the other hand, any slowdown in consumer durable/discretionary spending will likely negatively impact nylon. A faster resolution in Ukraine would likely be negative for the Ag names as even if it takes a while to correct crop and fuel imbalances, the stock market will likely look through that and start focusing on eventual more normalized markets.
Source: AdvanSix – 1Q22 Earnings Results Presentation, May 2022
Earlier in the week we talked about the weaker ethylene spot market in the US and the significant decline in margins as feedstock costs increase. Today we show how spot propylene prices are also weakening, and this is another case of shrinking margins given higher oil and natural gas pricing and their impact on propane prices. The decline in ethylene has been partly precipitated by new capacity, although we suspect there have also been some select derivative cutbacks because of full warehouses and logistic constraints. We are more concerned about demand for propylene given the recent move, as, while propane prices are off their recent highs, they remain very inflated, and refinery output is unlikely to have risen much given stable refining rates and the strong refining margins based on fuels production. Propylene is more levered to consumer durables than ethylene, and this spot price decline may be a leading indicator worth watching.
Source: Bloomberg, C-MACC Analysis, May 2022
