Following on from the Enterprise comments covered in our daily report, the company is more likely to acquire something in chemicals than build it in our view, especially if a move into ethylene or polymers is on the table. Today, building capacity will come with all sorts of emission-related restrictions most likely, and many of the new build announcements we have seen since COP26 have come with a carbon plan (Dow, Air Product, and Borouge). While it is not obvious today that any Gulf Coast ethylene capacity is up for sale, we would imagine that most companies are reviewing strategy and evaluating whether they have assets of entire businesses that may have a better owner. This would be especially true if a basic chemical business is holding back the valuation of a more interesting core. In the recent past, we have talked about the relative value arbitrage open to LyondellBasell from separating its compounding, licensing, and recycling business from the core. Maybe the core would fit well with Enterprise? As the chart below shows, there is money in buying ethylene for export, but there is more money in the US in making ethylene, as discussed in our daily report.
The Enterprise Products propylene numbers are impressive when you considering that its PDH facility was closed for a significant portion of the quarter, and while this likely contributed to tightness in the market, the company could have made even more money in 2Q. The results show the clear tightness in the propylene market in the US and reflect the very strong momentum in propylene derivatives, which is broad-based although we have tended to focus on polypropylene in recent work. See more in today's daily report.