Earnings beats and guidance raises are likely going to be the prevalent theme of 1Q 2021, and after Dow yesterday we have Air Liquide and Celanese today. Economic activity has picked up meaningfully in those segments of the economy that are suffering supply chain problems and while some of this is likely inflated, and will calm down once we sufficient inventory in the chain, it is worth remembering that large segments of the global economy remain depressed and that there are many growth drivers potentially still to come this year.
The industrial gas companies are always a good barometer for general economic growth, and Air Liquide’s results show the easy annual comparison with China (which should be a more pronounced gain for Air Products, earnings on May 10th, because of the proportion of the business in China). Otherwise, Air Liquide showed a good recovery in demand in Europe and what would have been a better number in the US had it not been for the winter storm. All the industrial gas companies have interesting levers at this point, with a general pick-up in economic activity good for the general business, and the added potential of some interesting opportunities in energy transition and emissions reduction, especially if there is broader support for blue hydrogen. All are talking about green hydrogen projects, and Air Liquide has some bold ambitions, but we question the returns on any of these projects absent significant government subsidies for at least the next 10-20 years – see our recent ESG and climate piece: True Blue: Not Green but Likely Good Enough for more on this and why we believe that blue hydrogen has a much brighter (and more profitable) future.
The Celanese guidance raise is significant, and we believe that it reflects the strength in PET as much as anything else today. China has added millions of tons of capacity for PTA and PET over the last few months, but the country is constrained on acetic acid supply, and for one of the domestic production routes – through calcium carbide – there is significant competition for other products, particularly VCM for PVC production – see our Wednesday Daily for more complete coverage of PVC – Asia prices, while well below those in the US, are at a multi-year high. Celanese is in the driving seat for acetic acid and its derivatives in Asia and should benefit from this surge in demand for some time. We expect to see continued strong growth for PET as demand should benefit from a desire to improve recycling, with PET easy to identify and consequently likely to take share from other polymers – especially polystyrene.
