We talk about the US producer’s pressure to keep polyethylene contract prices flat in October earlier in today's daily report but the exhibit below helps to show some of the potential longer-term consequences of that behavior. The desire to keep pricing high by the producers is obvious as they will continue to make outsized margins if they do and carry some of the good 3Q profitability into 4Q – it will still not be as good as 3Q as costs are up for ethylene and every polyethylene producer is integrated back to ethylene in the US. The large gap in pricing with Asia is declining, in part because Asia prices are at costs and costs as rising as crude oil prices strengthen.
We have discussed a theme around shortages that has been going on for months and is prevalent in many of the headlines today. It has also been a central theme of much of our energy transition work, as we think about the raw materials needed to meet the demand for solar and wind power as well as the infrastructure for hydrogen generation. The exception is lithium, where we see regular announcements around expansion projects, such as the one linked from Albemarle. The EV makers and battery storage manufacturers are doing an excellent job of encouraging investment in lithium, taking stakes in battery projects, and in some cases taking stakes in the lithium projects themselves. Offtake agreements also help projects get funding. We suspect that the offtake agreements are tactical – not aimed at buying out a source of lithium or a source of batteries but aimed at ensuring that a surplus of capacity gets built, to ensure no bottlenecks in the future.