Chem shares plunge as oil futures turn negative

HOUSTON (ICIS)–US-listed chemical shares fell sharply on Monday as the front month for West Texas Intermediate (WTI) went negative for the first time.

WTI for May delivery closed at minus $37.63/bbl, compared with $18.27/bbl on Friday. Prices fell so sharply because the May contract will soon expire.

When a futures contract expires, traders have two options – roll their position to the next month or take physical delivery of the oil. However, with the market saturated, buyers willing to take delivery of the crude were rare, pushing WTI to historic lows.

The June contract registered much smaller losses, settling above $20/bbl.

Brent, the international benchmark, closed at $25.57, down from $28.08/bbl on Friday.

Oil prices are falling because the world is running out of crude storage.

A new production agreement signed by OPEC and its allies does not go into effect until May, and many expect it will be too small to offset the loss of demand caused by the coronavirus.

Oil prices are important to the chemical industry because prices for chemicals and plastics tend to follow them with a six-month lag, according to the ICIS Petrochemical Index (IPEX). The index tracks 12 major petrochemicals and polymers.

For US chemical producers, lower oil prices can shrink their margins because they rely overwhelmingly on ethane and other natural gas liquids (NGLs) as feedstock. Much of the world relies on oil-based naphtha.

US producers lose their cost advantage when naphtha prices fall in relation to ethane.

The table below shows the US-listed shares of chemical companies followed by ICIS.

	$ Current Price	$ Change	% Change
AdvanSix	9.13	-1.38	-13.13
Axalta Coating Systems	17.37	-0.89	-4.87
Braskem	7.95	-0.13	-1.61
Celanese	76.25	-1.92	-2.45
Dow	31.58	-1.84	-5.51
DuPont	39.78	1.42	3.70
Eastman	53.78	-1.32	-2.40
HB Fuller	31.27	-0.82	-2.54
Huntsman	15.34	-0.23	-1.48
Ingevity	38.20	-1.48	-3.72
Kraton	8.72	-1.18	-11.92
Kronos Worldwide	8.93	-0.14	-1.54
LyondellBasell	48.65	-3.55	-6.79
Methanex	12.82	-0.38	-2.88
NewMarket	390.15	-11.56	-2.88
Olin	13.22	-0.48	-3.50
PolyOne	19.42	-1.22	-5.91
PPG	91.35	-1.97	-2.11
RPM International	64.54	-1.32	-2.00
Sherwin-Williams	499.35	-17.41	-3.37
Stepan	90.72	-3.39	-3.60
Chemours	10.45	-0.15	-1.42
Trinseo	18.66	-0.58	-3.01
Tronox	5.97	-0.41	-6.36
Univar	11.49	-0.43	-3.61
Venator Materials	1.28	-0.11	-7.91
Westlake Chemical	39.12	-1.67	-4.08

DuPont was the only winner. Earlier in the day, it posted its first-quarter earnings guidance. The company will release its earnings on 5 May.

The following table shows the major indices followed by ICIS.

	18-Apr	Change	%
Dow Jones Industrial Average	23,650.44	-592.05	-2.44
S&P 500	2,823.16	-51.40	-1.79
Dow Jones US Chemicals Index	498.57	-12.82	-2.51
S&P 500 Chemicals Industry Index	504.30	-13.83	-2.67

In Europe, chemical stock prices were flat.

In Asia, chemical shares were mixed.

The latest data from Japan, the world’s third-biggest economy, is downbeat. The country’s March exports shrank the most in four years with declines in shipments to both the US and China.

To further mitigate the downside risk to the economy, the People’s Bank of China (PBoC) cut its prime lending rate by 20 basis points on Monday to 3.85%. It was the second reduction for the key interest rate so far this year.

Focus article by Al Greenwood

Additional reporting by Richard Price, Tom Brown and Pearl Bantillo

Thumbnail image shows an oil rig. Photo by Olaf Kruger/imageBROKER/Shutterstock

Visit the ICIS coronavirus topic page for analysis of the impact on chemical markets and links to latest news.