Chemical railcar volumes remain very strong in the US, despite some issues with exporting polymers, which has led to inventory builds on the coast, especially the Gulf Coast, and despite the implied consumer volume purchase decline in 1Q GDP estimates (sales grew but prices rose 500 basis points more than sales growth – suggesting an equivalent decline in volumes). As we noted yesterday, some companies closer to the consumer are indicating demand weakness and are more cautious about 2Q outlooks. If a higher than usual proportion of rail freight is moving into inventory, either at customers or stuck in rail cars – something Union Pacific has signaled – we could see a correction.
Source: AAR, Bloomberg, C-MACC Analysis, April 2022
In the headlines from today's daily report there are several exceptions to the concerns that we raise above. The industrial gas companies are seeing strong growth from increased industrial activity and some of this is related to the four segments that we do believe will be materially impacted by an economic slowdown – national security, energy security, energy transition, and re-shoring. These segments should keep demand strong for all of the relevant materials and we see decarbonizing opportunities for all the industrial gas companies in oxy-combustion and hydrogen in addition to general growth in packaged gases. The Huntsman performance in part reflects the better portfolio and better strategy, but there is also pent up demand in polyurethanes – especially at the auto manufacturers, and as we noted in our ESG and Climate report yesterday, epoxies may become much more interesting as wind turbine growth tightens up China supply and this rolls through the rest of the world.
Source: Huntsman – 1Q22 Earnings Release Presentation, April 2022
Lastly, looking at the linked Methanex results we would remind our clients of something we wrote a month or so ago and which follows neatly on from our European energy comments in today's report. If Europe is scrambling to meet energy demand this coming winter, methanol could become an alternate fuel and a way to ship liquid energy to Europe. Some retooling on the consumption side would be necessary, but with enough lead time and the right contracts, we could see a step-change in methanol demand as part of a European energy rescue package.
Source: Methanex – April Investor Presentation, April 2022
