US chem shares rise as oil futures surge
HOUSTON (ICIS)–US-listed shares of chemical companies rose for the second day on Thursday as oil futures rallied again.
Brent futures settled at $21.33/bbl, up 4.7% from $20.37/bbl on Wednesday. West Texas Intermediate (WTI) settled at $16.50, up 19.7% from Wednesday’s $13.78/bbl.
The general stock market was mixed, giving up most of its gains from earlier in the session. The table below shows the major indices followed by ICIS.
|Dow Jones Industrial Average||23,515.26||39.44||0.17|
|Dow Jones US Chemicals Index||502.43||4.88||0.98|
|S&P 500 Chemicals Industry Index||506.87||3.32||0.66|
The general indices started falling after an article from the Financial Times, which reported that Gilead’s treatment for the coronavirus (Covid-19), Remdesivir, flopped in its first trial.
An earlier report about the medication caused the stock market to soar.
For chemical companies, share prices have moved in tandem with oil. The table below shows the US-listed chemical companies followed by ICIS.
|$ Change||% Change|
|Axalta Coating Systems||18.25||0.25||1.39|
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.
Although oil prices have rallied in the past couple of days, they still remain much lower than the start of the year, when they exceeded $60/bbl.
There are growing concerns that the world will run out of storage because supply cannot fall fast enough to match the drop in demand caused by the coronavirus.
If the world runs out of storage, oil markets would lose their price floor.
Chemical companies are contending with the decline in oil prices as well as the fallout from the coronavirus.
US cases reached 802,583 while fatalities reached 44,575, according to the US Centers for Disease Control and Prevention (CDC). The fatalities exceed those in a typical flu season, according to the CDC.
US-based pigment producer Tronox became the latest company to announce plans to issue more debt to support liquidity.
It is joining LyondellBasell and DuPont.
Also, industrial gas producer Air Products has withdrawn its fiscal 2020 earnings and capital expenditure (capex) guidance.
In Europe, chemicals stocks rose modestly despite the release of economic data highlighting the extent of demand collapse in the region in April.
The eurozone composite PMI – encompassing manufacturing and service sector output – fell to 13.5 points, a record low.
The River Rhine is becoming low enough to start to affect the volume of freight that can be sent down the waterway.
In Asia, petrochemical shares were mostly higher.
Additional reporting by Stefan Baumgarten, Tom Brown and Nurluqman Suratman
Visit the ICIS coronavirus topic page for analysis of the impact on chemical markets and links to latest news.
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