We reflect back on our BASF comments of last week and see Covestro falling into the same trap, by underestimating the potential slowdown in discretionary spending in Europe (and the US) and consequently putting too much hope into revised guidance. At the same time, we are not sure what would be gained by painting a picture of doom and gloom, but we would hedge much more overtly if we were offering guidance around the business outlook today.
In our ESG and Climate report tomorrow, we are focusing on renewable materials and fuels, emphasizing counting carbon and the importance of verification and auditing. However, one of the side issues concerning renewables is their impact on food prices if they bid crops away from the food chain. The chart of the day from our daily chemical reactions report shows that corn prices are above their historical correlation with crude oil, but it also indicates a correlation and fuel markets can pay more for corn and other crop-based fuels when oil prices are high. The issue with exhibit below is that we already have inflated crop prices with minimal incremental demand for the fuel markets today. Prices are rising on strong global demand growth for food – supply chain issues that existed before the Ukraine crisis and – the supply challenges that are a direct consequence of the Ukraine crisis. This is before any significant investment in renewable fuels or materials. As governments implement policies to encourage renewable fuels – especially SAF – they need to consider what policies and incentives might be required in addition to price, encourage meaningful changes to the acres planted around the world, and help productivity where it is low.
One of the key messages from the World Petrochemical Conference is that it is not an oil shortage, it is a commodity shortage, and we show our key metals index (updated through February) again in the chart below. We will update this again at the end of March (when consistent data is available) and given what has happened to both lithium and nickel prices we would expect a jump in the March index.