2022 has started very strongly for US chemical and polymer producers, in part because demand growth remains very robust based on early reads from those that have reported earnings, and in part because of the ever-increasing competitive edge that the US is enjoying over Asia – see exhibit below. US producers can maintain strong margins in the US, while easily pushing any surpluses into export markets where local suppliers cannot compete. At the same time, higher production costs and very high logistic costs make it almost impossible for those regions with capacity surpluses to move products into the US, and it is challenging also to move products into Europe. If this production and logistic cost environment persist, not only should US prices stabilize, but for select companies – those with a strong US production bias – we should see estimates for 2022 start to rise.
With ExxonMobil and Baystar’s ethylene plants in start-up and Shell expected to come online in Pennsylvania in 1H 2022, the news that Braskem wants to double its ethane imports from the US in 2022, adds to concern that the US may struggle to meet ethane needs at peak demand rates in 2022. We would be less concerned if we saw natural gas production rising, which is unclear for 2022, despite the expected new LNG capacity. Ethane is likely to follow any upward movement in natural gas pricing as there will be a need to bid the product away from heating alternatives. The increment suggested by Braskem in the Exhibit below is not larger in the overall scheme of US ethane demand, but every gallon may matter in 2022. See today's daily report for more.
PVC margins are off their highs, as pricing is falling through June. The building product markets remain robust in our view, albeit off their highs, and some of the strength in PVC in April and May was a consequence of production shortages caused by the winter freeze in February. While PVC may be falling faster than polyethylene today, we see support for US PVC at higher prices and margins than for polyethylene in a weaker market unless oil climbs further relative to US ethane. See more on our daily report.