US chem shares fall again as oil prices plummet

HOUSTON (ICIS)–US-listed shares of chemical companies fell again on Tuesday as oil prices continued falling.

Brent futures for June delivery fell by $6.24/bbl to close at $19.33/bbl.

The last time Brent futures were this low was on 7 February 2002, when they closed at $19.21/bbl.

The US benchmark, West Texas Intermediate (WTI) for May delivery, returned to positive territory, closing at $10.01/bbl, up from Monday’s close of minus $37.63/bbl.

The May WTI contract expired on Tuesday. The June contract closed at $11.57/bbl, down $8.86/bbl.

Oil prices are falling because of growing signs that the world will run out of storage. Demand has crashed because of travel and work restrictions imposed to control the spread of the coronavirus (Covid-19).

Producers have not reduced output fast enough to keep up with demand destruction.

As the world exhausts storage capacity, futures prices could continue falling and even return to negative territory.

The result could lead to oil-well shut-ins, layoffs and bankruptcies.

For the second day in a row, general stock markets fell in tandem with oil prices as shown in the following table.

	21-Apr	Change	%
Dow Jones Industrial Average	23,018.88	-631.56	-2.67
S&P 500	2,736.56	-86.60	-3.07
Dow Jones US Chemicals Index	486.68	-11.89	-2.38
S&P 500 Chemicals Industry Index	491.84	-12.46	-2.47

The table below shows the companies followed by ICIS.

	$ Current Price	$ Change	% Change
AdvanSix	8.82	-0.19	-2.11
Axalta Coating Systems	17.05	-0.32	-1.84
Braskem	7.77	-0.16	-2.02
Celanese	73.46	-2.56	-3.37
Dow	30.88	-0.65	-2.06
DuPont	39.07	-0.65	-1.64
Eastman	52.72	-0.89	-1.66
HB Fuller	30.51	-0.76	-2.43
Huntsman	14.94	-0.40	-2.61
Ingevity	37.70	-0.58	-1.52
Kraton	8.77	0.06	0.69
Kronos Worldwide	8.81	-0.08	-0.90
LyondellBasell	46.63	-1.78	-3.68
Methanex	12.66	-0.16	-1.25
NewMarket	394.40	2.83	0.72
Olin	13.33	0.14	1.06
PolyOne	19.94	0.42	2.15
PPG	88.01	-3.09	-3.39
RPM International	62.82	-1.55	-2.41
Sherwin-Williams	484.90	-10.97	-2.21
Stepan	89.99	-1.33	-1.46
Chemours	10.18	-0.23	-2.21
Trinseo	18.25	-0.51	-2.72
Tronox	6.11	0.22	3.74
Univar	11.35	-0.14	-1.22
Venator Materials	1.20	-0.07	-5.51
Westlake Chemical	38.03	-0.89	-2.29

PolyOne’s stock prices rose after the company reported its Q1 earnings. Sales fell because of the coronvavirus, but margins improved, the US-based formulator said.

US-based surfactants and polyols producer Stepan also reported Q1 earnings.

Operating income from the company’s Polymers segment fell year on year because of the outage at its Millsdale plant in Illinois.

Earnings for its Surfactants segment fell because of lower demand from agricultural and oilfield end markets. This offset strong sales for consumer goods. These rose because of higher demand for cleaners and disinfectants 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.

In Europe, chemical stocks fell along with oil prices.

There are some signals of buoyancy on the horizon for European economies, as the Zew institute’s economic indicator showed that Germany could see GDP return to growth in the third quarter.

While some central and eastern European countries have started to relax quarantine measures, economies may remain in tatters if demand does not support a pick-up in production.

In Asia, chemical shares ended mostly lower.

Fitch Solutions made significant revisions to its growth forecasts on Tuesday as the number of coronavirus cases continued to rise globally.

“We continue to see downside risks to our forecasts, depending on how sharp and prolonged the downturn ultimately is, and the contraction in global growth could eventually exceed 2.0%,” it said in a note.

“Indeed, we expect global economic activity to decline sharply in Q2 2020, as most of the global economy remains under some form of lockdown, but we still anticipate a recovery emerging in Q4 2020,” Fitch said.

Focus article by Al Greenwood

Additional reporting by Stefan, Baumgarten, Antoinette Smith, Lucas Hall, Mogan Condon and Nurluqman Suratman

Image shows drilling rig in oilfield; Photo by Shutterstock

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