While the Shell headlines today are probably the biggest news, it should not be a surprise to anyone that earnings are lower in 4Q than they were in 3Q, as all of the market indicators have been telling us this for months, and Dow made a statement to this effect in early December. Given the location of Shell’s Norco facility, it took a full hit from Hurricane Ida and the company made several statements at the time regarding delays to restarts. We expect other chemical companies to post meaningful declines in earnings for 4Q relative to 3Q 2021, but unless, like Shell, they experienced meaningful production outages, we would still expect 4Q results to be above “normal” and higher than earnings in 2019. We still see share prices for the public companies as very low looking at values relative to 2019 and earnings relative to 2019, but the negative momentum in earnings is more important to investors today than the absolute level of earnings. As we have stated in prior work, we need to get through negative revisions before the sector could look interesting. The exception, as noted in our Daily Report today, could be PVC, where pricing could look better than is already implied in 2022 estimates and valuation. A positive tone in upcoming conference calls may be a turning point for the PVC-related stocks – Westlake primarily. We could see the trend in the chart below reverse.
We are seeing some stability in ethylene and propylene pricing in the US to start the week, and with the steady rise in crude prices and the Monday jump in natural gas prices, this is not surprising. As we noted in yesterday’s Weekly Catalyst, there is enough incentive to export ethylene from the US to Asia – most likely Southeast Asia rather than North Asia, and this could offer support for those with surplus ethylene in the US today.