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Big Oil’s chemical profits show double inflation hit

(Bloomberg) – Drive on any freeway in the world and you will see countless reminders that the price of Big Oil’s main product is going up. What is less obvious is how the inflationary pressures of transportation fuel are magnified by another part of this sprawling industry – chemicals. It’s great for companies like Exxon Mobil Corp. and Royal Dutch Shell Plc, whose petrochemical units have just made their biggest profits in years, but that’s not good news for consumers, as raw materials ranging from copper to lumber are already reaching record levels . The price of materials like PVC and ethylene, basic construction and manufacturing products, hit their highest level in at least seven years due to a combination of demand due to a pandemic, the broader post-Covid recovery and unique supply disruptions. “The demand is coming from food, packaging, medical products, protective gear,” said Oswald Clint, senior research analysts at Sanford C Bernstein Ltd. “Does that add to inflation? Yes. Oil has risen steadily this year, hitting less than $ 70 a barrel in London this week. Yet even though the rise in crude prices boosted the profits of the oil majors’ exploration and production units, the performance of their petrochemical businesses really stood out. at least in 2014, when oil prices were above $ 100 a barrel. More than a fifth of Shell’s $ 3.23 billion in adjusted net income for the period came from the division, the highest in four years. Chemicals has been the fastest growing unit of Indian conglomerate Reliance Industries Ltd. in the first three months of 2021, compared to the previous quarter. Other boom winners include Brazilian Braskem SA, Indorama Ventures PCL of Thailand, Celanese Corp., Dow Inc. and LyondellBasell Industries NV in the United States, and Saudi Basic Industries Corp., according to Jason Miner, chemicals analyst at Bloomberg Intelligence. “It’s a story of the strength of intermediaries,” Jessica Uhl, Shell’s chief financial officer, told investors on April 29. compounds derived from basic petrochemical raw materials. Demand is growing as the economy recovers, especially in Asia, she said. For example, the price of styrene monomer – used in medical devices and latex – topped $ 1,000 per tonne in the first quarter, Uhl said. The average price of the chemical at the port of Rotterdam in the Netherlands was around $ 700 per tonne in 2020, according to data compiled by Bloomberg. Global vaccination campaign and major stimulus programs are boosting consumer sentiment and demand from healthcare, packaging and consumers. durable goods, textiles and automobiles, Reliance said in its earnings presentation last week. Demand for polymers and polyesters has been particularly strong in India, he said. The chemical industry has also just returned from several major supply disruptions: back-to-back hurricanes on the U.S. Gulf Coast last year were followed by unusually cold weather in February, which destroyed much of the grid. power plant in Texas and forced the petrochemical giant. facilities to be closed. Two months later, many still do not return to work at full capacity. The region has become a dominant player in the global plastics trade thanks to natural gas liquids – a cheap petrochemical feedstock – from the shale boom in Texas. For example, North America is the world’s largest producer of high density polyethylene, used in everything from shampoo bottles to snowboards. It is also the largest exporter of PVC. “The big freeze sent a shock wave to the global petrochemical markets,” Viennese consultant JBC Energy GmbH said in a note. While nearly all of the factories that have been shut down by the weather have been brought back online, stocks of many chemicals are still low, keeping prices high, he said. a seven-year high of 59.5 cents a pound in March, according to CIHI, a data and analytics provider. PVC hit a record high of $ 1,625 per tonne that month, even recycled plastic is in high demand, with the price of polyethylene terephthalate, or PET, used for beverage bottles and packaged food, peaking at 10 years at 1250 euros ($ 1519). one metric ton in northwestern Europe on Wednesday, according to S&P Global Platts. The price remained at this level on Friday. “If you could get back on track soon after the storm,” you found a desperate market for your product that “would pay almost any price to get it,” said Jeremy Pafford, director of North America at ICIS. and demand balance for many chemicals is expected to continue into the second quarter, Exxon CEO Darren Woods said on a call with analysts last week. Dow and LyondellBasell said they are currently selling everything they produce and have no plans to be able to replenish their inventory until Q3 or Q4 To make enough chemicals to meet customer demand and start over to build up its stocks, the United States needs “four But hurricane season is fast approaching and the world economy does not have time on its side. The world is expected to see increased spending in the coming months as many countries end their shutdowns and locked-in consumers dip into their savings or stimulus checks. This could come along with continuing trends related to the pandemic, such as high demand for plastic medical products, as new strains of Covid-19 trigger new outbreaks around the world. “The demand for personal protective equipment is unlikely to decline anytime soon,” said Armaan Ashraf, analyst at consultant FGE. “Demand for e-commerce, retail and durable goods is also expected to remain strong for the remainder of the year.” (Update PET price in 17th paragraph) For more items like this, please visit us at bloomberg.com in advance with the most trusted source of business information. © 2021 Bloomberg LP

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