US rail data for chemicals remain at the 5-year highs and have been there for almost 2 months. This is working its way into the supply chain and we are seeing weakness in US polymer prices across the board, except for PVC. US spot polymer prices are in a bit of a “no man's land” right now as they would need to drop significantly to find incremental demand offshore, given US premiums to the rest of the world. We believe that most of the volume leaving the US is doing so within company-specific businesses – ExxonMobil supplying ExxonMobil customers, Dow supplying Dow customers, etc, and consequently, these shipments do not show up in the spot market.
Focusing on a theme from our daily report today and our ESG report yesterday, the cost pressures in Europe are very real, and the more the power or natural gas component to your costs the more the pain and the more important it will be to raise prices. The industry and consumers, in general, have not had to deal with significant inflation for decades and it is very easy for customers to push back with a “this is transitory” argument, especially when many governments are telling that story. The supply chain is to blame to a degree, but it is largely a symptom of the underlying cause, which is that demand has outstripped supply. It is easy and more palatable to try and brush it off as temporary, but if the energy price issues persist in Europe and China and companies are not successful in passing on prices they will, at some point, choose not to operate. Alternatively, if power shortages are enough to cause interruptions, industrial users may have no choice but to close down. All this will impact product availability and buyers pushing back on price increases could find themselves without supply which is generally worse than paying more. The European packaging industry is right to raise the flag around higher prices, but their customers will pay the increases needed to ensure that they can keep operating, even if the discussions are more challenging than they have needed to be for the last 30 years.