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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: Hello and welcome to another episode of the ad Thoughts podcast.

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Speaker 3: I'm Tracy Alloway and I'm Joe Wisenthal.

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Speaker 2: Joe, I have a prop for today, prop episode, a

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Speaker 2: visual learning aid for a podcast. I'm going to hold

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Speaker 2: this up.

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Speaker 3: Yeah, what is this? It looks like a magenta marker.

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Speaker 2: Magenta.

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Speaker 3: Yeah, it's pink.

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Speaker 2: It's hot pink's it's like purplish pink. Really, Okay, color

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Speaker 2: is beside the point. It is indeed a highlighter. But

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Speaker 2: more importantly, it is a result of a complex petrochemicals

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Speaker 2: supply chain.

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Speaker 3: You're right, it Isgenda is more purplish. I don't know.

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Speaker 3: I always thought it's a little bit more pinkish. But yes,

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Speaker 3: you're correct, you're you're correct, You're totally correct.

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Speaker 2: I didn't intend your major takeaway from this conversation to

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Speaker 2: the different maga.

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Speaker 3: Okay, but yes, you're right. And without advanced chemicals of

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Speaker 3: all sorts and oil and all that, you would never

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Speaker 3: have the plastic shell of the marker, and maybe even

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Speaker 3: some aspects of what gives it color when you draw

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Speaker 3: on something.

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Speaker 2: All right, So what is this plastic casing actually made

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Speaker 2: of this is a.

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Speaker 3: Pop quiz that I definitely have no idea. Okay.

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Speaker 2: It starts from.

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Speaker 3: Yeah, crude oil, yeah that okay.

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Speaker 2: Yeah, so crude oil distilled into.

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Speaker 3: Keep going naphtha, naphtha, right, naphtha.

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Speaker 2: And then naphtha is this is a hint cracked into

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Speaker 2: ethylene or propylene. Yeah, we've actually done yeah, okay, and

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Speaker 2: then it gets polymerized, yeah, into polyethylene, right, and then

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Speaker 2: it gets chopped up into tiny little plastic pellets, which

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Speaker 2: are I know, you know this one. What are they

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Speaker 2: called the little plastic pellet? One of my favorite words.

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Speaker 3: Go on, nerdles, nerdles. I remember all of this from

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Speaker 3: that episode that we did nerdle the.

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Speaker 2: Building blocks of highlighters and lots of other plastic products,

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Speaker 2: which isles. Okay. So the reason we bring this up

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Speaker 2: is obviously there's a situation in Iran. The Straight of

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Speaker 2: Horror Moves is still closed. We're recording this on March

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Speaker 2: twenty fourth, and we're starting to see a lot of

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Speaker 2: the disruptions in the oil market start to I guess,

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Speaker 2: ripple out into other petrochemicals.

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Speaker 4: Right.

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Speaker 3: And someone asked this on a twinter the other day,

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Speaker 3: and they were like Joe, or is the higher price

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Speaker 3: of oil gonna impact the price of plastics? And I

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Speaker 3: was like, I would be very surprised if it didn't.

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Speaker 3: I mean, I don't really know for sure, but it

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Speaker 3: would be very weird. It would be hard for me

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Speaker 3: to imagine a scenario in which the key input doesn't.

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Speaker 3: The thing that I am very curious about, and you

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Speaker 3: described a sort of sequential chain of industrial processes from

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Speaker 3: the oil to the nerdles, and of course when we

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Speaker 3: did the episode, so one of the things that we've

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Speaker 3: talked about is that there is a gap between the

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Speaker 3: price of some of these end products and the implied

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Speaker 3: price of crude oil. So crude oil, I don't know

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Speaker 3: exactly where it is right now at this moment that

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Speaker 3: we're recording it, but it's shot up, but these end

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Speaker 3: products have shot up even more. And our guest Rory

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Speaker 3: Johnson had a really good explanation, which is that the

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Speaker 3: refineries do not want to shut down, and so they're rationing.

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Speaker 3: They're slowing their input, their input because it is very

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Speaker 3: costly to shut down and ever restart should they ever

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Speaker 3: run out, which is a prospect given that we're seeing

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Speaker 3: a volumetric decline and the amount of oil available in

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Speaker 3: the world. What I'm curious about, in which I don't

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Speaker 3: know the answer, is whether this applies to all of

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Speaker 3: the different processing steps along the way, which is is

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Speaker 3: there this sort of even greater price impact because the

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Speaker 3: entities that do all these sequential industrial processes are slowing

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Speaker 3: down because the shutdown and restart process is costly for

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Speaker 3: them as well. Well.

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Speaker 2: I would say the added complication with a lot of

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Speaker 2: petrochemicals is we are in fact seeing some closures already.

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Speaker 2: So in Asia, we've had a few crackers, as they're

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Speaker 2: called Asian crackers, start to shut down their production and

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Speaker 2: basically declare force measure, and so we are seeing fewer

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Speaker 2: petrochemicals get made in places like Japan and South Korea.

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Speaker 2: I think the question we're kind of inching towards is

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Speaker 2: whether or not this is just going to be a

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Speaker 2: question of price, you know, prices for plastics go up,

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Speaker 2: or an actual supply shortage in the sense that maybe

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Speaker 2: you just can't get certain types of plastics or packaging.

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Speaker 2: And one other thing I would just add, I think

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Speaker 2: in the post COVID environment, an underappreciated driver of inflation

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Speaker 2: at that time was the cost of packaging. That's right,

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Speaker 2: because we did see the cost of plastics go up.

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Speaker 2: And if you think about what you're buying at a

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Speaker 2: grocery store, like, Okay, it's a bunch of carrots, but

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Speaker 2: it's also a bunch of carrots in a plastic and.

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Speaker 3: A plastic bag completely or jar or whatever. And I

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Speaker 3: would say in a lot of the cases of food

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Speaker 3: stuffs in particular, you're mostly paying for the entire supply

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Speaker 3: chain and the packaging of it. The actual food value

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Speaker 3: is almost dirt cheap if nothing. And so yeah, and

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Speaker 3: are we just going to get outright shortages? What other

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Speaker 3: ripple effects? I don't think we have any idea. Probably

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Speaker 3: one of these things that compounds the longer this war

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Speaker 3: enclosure goes on.

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Speaker 2: Many questions that we have, all right, well, I am

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Speaker 2: happy to say we do, in fact have the perfect

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Speaker 2: guests to talk all things petrochemicals. We're going to be

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Speaker 2: speaking with Philip Gertz. He is the chemicals and oil

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Speaker 2: analyst over at BNEF and a guy who lives and

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Speaker 2: breathes polymers, hopefully not literally.

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Speaker 3: Not breathed, hopefully not breathes polymers.

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Speaker 2: All right, Philip, thank you so much for coming on

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Speaker 2: a lauds.

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Speaker 4: Thank you very much, Tracy and Joe and sounds are

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Speaker 4: we set introduce me with living and breathing polymers. But

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Speaker 4: I'll take it. I'll take it for sure.

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Speaker 2: We're all filled with microplastics now, right, So you're not

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Speaker 2: exactly right. So I'm tempted to begin just by asking

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Speaker 2: you to kind of list all the petrochemicals affected by

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Speaker 2: the strait of hornes moose, sort of like Forest Gump

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Speaker 2: style ethylene, propylene, polyethylene. You go on and on and on,

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Speaker 2: but just broadly, why don't you tell us about the

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Speaker 2: Gulf region and its role in the petrochemicals supply chain.

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Speaker 4: Who right, Yeah, lot's to unpack here. So when it

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Speaker 4: comes to chemicals at large, let's maybe establish three different categories.

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Speaker 4: We have the feed stock, like you already pointed out, Tracy,

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Speaker 4: basically you almost don't need me here. But you have

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Speaker 4: the crude oil that's turned into NAFTA and liquefied petroleum gas,

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Speaker 4: which are butane and propane principally ethane. Those all the

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Speaker 4: feedstocks that go into the so called crackers, and the

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Speaker 4: crackers turn them in what we call base chemicals. There

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Speaker 4: are technically six major based chemicals that come out of this,

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Speaker 4: but for the sake of today's discussion, the major focus

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Speaker 4: will probably be really around ethylene propylene. If we want

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Speaker 4: to get readyfins, we can talk about xylene's parasolline or butydyninge.

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Speaker 4: But a lot of the really the majority of the

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Speaker 4: bulk plastic that we talk about really come from ethylene

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Speaker 4: and propylene, and some from parasylene. In terms of polyethylene,

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Speaker 4: terreftolot or are also more commonly known as polyester. So ethylene, propylene,

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Speaker 4: xyolene are turned into polyethylene, polypropylene and into polyethylene terreftolot

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Speaker 4: or polyester. Now you have a wide range of really

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Speaker 4: different derivative chains. Even within polyethylene, you have a lot

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Speaker 4: of subcategories, and within those subcategories of other subcategories. In

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Speaker 4: very simple terms, you have a three way division into

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Speaker 4: high density polyethylene, low density polyethylene, and linear low density polyethylene.

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Speaker 4: Doesn't matter too much, but it's good to be aware

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Speaker 4: of that. When we talk about, well in analyst terms,

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Speaker 4: about where the market is moving, we typically look at

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Speaker 4: high density polyethylene. What's the supply demand there? Same goes

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Speaker 4: for low density. Obviously they have different applications. And also

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Speaker 4: within those larger buckets there are a lot of subcategories.

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Speaker 4: Now you circle back to the major theme here of

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Speaker 4: what's the position of the Middle East Gulf. So within

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Speaker 4: those three categories, firstly, the Middle East itself is a

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Speaker 4: major ex border of polyethylene, polypropylene, et cetera, et cetera,

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Speaker 4: especially of polyethylene. And when I say major, let's be

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Speaker 4: specific in need polyethylene polyethylene varieties. That's about twelve percent

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Speaker 4: of global capacity. Production will be slightly higher thirteen fourteen percent,

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Speaker 4: quite a significant chunk. To make that even more explicit,

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Speaker 4: if you take those volumes, we're talking about eighteen million

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Speaker 4: tons one eighth of production capacity, and Middle Eastern crack

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Speaker 4: or Middle Eastern facilities typically run at very high rates

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Speaker 4: ninety two hundred percent, so roughly an equivalent amount of production.

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Speaker 4: If you take all of that, that's basically as much

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Speaker 4: as Europe slash slightly more consumes. So it's a lot right.

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Speaker 4: You have those volumes firstly being taken off the market directly,

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Speaker 4: although a couple of asterisks here because technically polymers are

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Speaker 4: export it differently than fuel. They're exported in a solid state,

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Speaker 4: which means theoretically there should be the possibility of diversion.

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Speaker 4: That's slightly easier than for oil NAFTA or oil products

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Speaker 4: in general. It's big asterisk there. But if you take

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Speaker 4: all of that off the market, you basically have the

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Speaker 4: entirety of what Europe consumes all of the sudden disappearing.

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Speaker 4: So that's step number one. Emphasis here on this goes

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Speaker 4: especially again for poly ethylene varieties. Polypropylene is slightly lower.

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Speaker 4: We're talking about seven ish percent of global production PVC

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Speaker 4: polyvinyl chloride, which is used heavily in infrastructure, even lower.

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Speaker 4: That's three to four percent styrene, which is another major

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Speaker 4: value chain we're talking about against six to seven percent,

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Speaker 4: so the Middle East in terms of polymers, that's really

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Speaker 4: really a poly ethylene story, but not exclusively. So that's

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Speaker 4: step number one, the direct polymer exports. Step number two

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Speaker 4: is and that I would argue is really where you

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Speaker 4: see the biggest impact is on the feed stock side. Again,

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Speaker 4: this is something you can subdi into three categories. You

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Speaker 4: have direct NAFTA exports. You have crude oil exports that

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Speaker 4: are then turned into NAFTA amongst others, so the refineries

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Speaker 4: run on it, and obviously if you have to cut

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Speaker 4: refinery rates, you're also going to lose NAFTA output. And

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Speaker 4: you have what's again called LPG liquified per toilum gas,

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Speaker 4: which I'll just allude to well as LPG from now on,

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Speaker 4: but that means probaane buttane. So we have those three

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Speaker 4: they almost exclusively go to Asia. And when I say Asia,

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Speaker 4: we can go into the nitty gritty details of how

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Speaker 4: dependent each individual producer is exactly in those feedstock extremes,

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Speaker 4: because there are quite huge differences there. But in very

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Speaker 4: broad terms, polymer exports, that's twelve percent. If we take

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Speaker 4: the NAFTA enough to exports and the crude oil exports,

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Speaker 4: and we translate that into how much does ethylene and

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Speaker 4: consequently polyethylene production would have to be cut in Asia?

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Speaker 4: That's probably around fifteen to seventeen percent of global production.

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Speaker 4: So that's really where the predominant hit comes from.

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Speaker 3: Now it's fantastic. First of all, quick question on NAFTA,

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Speaker 3: is that typically produced where the oil comes from? How

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Speaker 3: like tight is that it is derived from crude oil?

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Speaker 3: Is it typically right there? Or they're parts of the

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Speaker 3: value chain where the oil gets shipped a long way

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Speaker 3: and then the nafta is produced somewhere else.

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Speaker 4: It's basically the latter, or rather it just depends right, Okay,

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Speaker 4: the same as as for refineries at large, it just

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Speaker 4: depends on where your refineries are located. So if you

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Speaker 4: look at the Middle East for example, or let's take

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Speaker 4: Saudi Saudi produces around ten to eleven million barrels of

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Speaker 4: crude oil per day. But if I'm not mistaken, it's

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Speaker 4: refining capacity is around anywhere betweenty three and four million

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Speaker 4: barrels per day. So in that case, it refines a

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Speaker 4: relatively small amount of its total production capacity.

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Speaker 2: So to Joe's point, why do places like Japan and

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Speaker 2: South Korea, why do they have, you know, crackers who

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Speaker 2: are refining naptha into other polymers at all? Why does

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Speaker 2: that make sense for them or is strategically important?

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Speaker 4: Well, history plays a huge role. Japan, next to Europe

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Speaker 4: and the US, was really one of the front runners

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Speaker 4: of the petrochemical industry. And that's also why at the

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Speaker 4: same time, even before all of this happened, Japan was

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Speaker 4: also on the front line of losing its chemical industry.

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Speaker 4: That's another topic we can get into later. But basically

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Speaker 4: your question would also be, then why aren't those products

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Speaker 4: exclusively produced in the Middle East and den ship the story?

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Speaker 2: Why not just import them? Why even bother refining them domestically?

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Speaker 4: Well, I mean it's not only a question of enough

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Speaker 4: to per se, right, but Japan also needs jet fuel, diesel, gasoline, etcetera.

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Speaker 4: So all of those come into one supply chain and

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Speaker 4: another asterisk here is the Middle East. Again, the Middle

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Speaker 4: East is also a major producer of chemicals. If you

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Speaker 4: look at ethylene, for example, the largest by far, Surprisingly

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Speaker 4: I don't need to turn this into a pop quiz,

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Speaker 4: that's China. That's sixty one million tons of ethylene twenty

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Speaker 4: five percent of global capacity then comes to US forty

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Speaker 4: four million tons a data by the way, as of

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Speaker 4: January twenty twenty six. Provisionally, then you have Saudi Arabia

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Speaker 4: seventeen million tons, right, so you already have a huge

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Speaker 4: step down here, But Saudi Arabia is the third largest

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Speaker 4: producer or in terms of chemical ethylene capacity at least

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Speaker 4: then you have Self Korea have thirteen million tons. So

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Speaker 4: what I'm getting at here is to midd least already

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Speaker 4: Saudi as an example, producers a lot has a lot

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Speaker 4: of capacity. But because there are such extraordinary oil producers

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Speaker 4: next to chemical producers, and the chemicals they produce locally,

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Speaker 4: by the way, are largely gas derived. We can get

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Speaker 4: also get into that later. But they do both right

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Speaker 4: to export a lot of polymers, a lot of chemicals,

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Speaker 4: but they also export a lot of products. It's probably

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Speaker 4: a bigger question in terms of the overall oil supply

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Speaker 4: chain why companies have chosen to also build out the

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Speaker 4: refineries in Japan soft Korea a wether than all in

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Speaker 4: the Middle East itself.

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Speaker 3: So Tracy obviously started the conversation showing her hot pink highlight.

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Speaker 2: How you learned something.

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Speaker 3: But like you know, if we have to go for

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Speaker 3: a while without making highlighters, or maybe we reduce the

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Speaker 3: colors of the highlighters, not the end of the world.

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Speaker 3: The world isn't going to come to a screeching end,

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Speaker 3: et cetera. But I imagine sometimes are a little bit

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Speaker 3: higher on the value chain. And so when we talk

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Speaker 3: about now, though we talk about some of these other things,

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Speaker 3: what end uses would you be most worried about now?

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Speaker 3: Because the volume or the capacity numbers that you mentioned

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Speaker 3: are pretty substantial. So again, I'm not too worried if

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Speaker 3: we go for a few months without making highlighters. What

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Speaker 3: are the end use cases that you're watching right now?

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Speaker 3: They're like, oh, this could be a real problem.

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Speaker 4: Oh you guys had podcasts on fertilizers on this stay. Yeah,

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Speaker 4: that's right, it's a very similar story. My main concern,

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Speaker 4: without a doubt, would be food packaging. I am not

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Speaker 4: aware of any fungible products for polyethylene to be used

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Speaker 4: at the same scale for food packaging as well polyethylene,

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Speaker 4: so I do not know whether it is a viable alternative.

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Speaker 4: Maybe there is, and I'm just ignorant about it, But

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Speaker 4: to me, without a doubt, food package and packaging at large.

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Speaker 4: It's very cliche to take your own topic and talk

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Speaker 4: about how incredibly important it is to modern day society.

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Speaker 3: But I mean, this is the complexity of modern day society.

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Speaker 3: This is actually a very important point. Is a joke,

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Speaker 3: and it's like everyone jokes is like, oh, what I

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Speaker 3: do is the chase is the key thing holding modern

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Speaker 3: day society together. They're not wrong. They're okay, podcasting, maybe not,

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Speaker 3: but like they're not wrong, Like any one of these

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Speaker 3: things go and the whole thing goes that was the

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Speaker 3: less absolute COVID. So you're not absolutely so take the

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Speaker 3: take the credit. You're at the center of the world

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Speaker 3: right now. So yeah, all right, talk about food packaging

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Speaker 3: and what you're worried about.

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Speaker 4: Yeah, food packaging, packaging at large. I'm less worried about,

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Speaker 4: let's say, infrastructure projects, right because if you take let's

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Speaker 4: say high density poly ethylene and polyvinyl chloride, a lot

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Speaker 4: of them go into infrastructure projects. Hence why you could

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Speaker 4: see in India, for example, since twenty eighteen twenty nineteen,

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Speaker 4: huge search in those chemicals demand, especially high density poly ethylene,

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Speaker 4: because they were incredibly large infrastructure projects, especially on water pipelines,

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Speaker 4: if I'm not mistaken, goes into that still incredibly important.

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Speaker 4: But if we talk about meeting really the urgent tasks

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Speaker 4: of the day, which is making sure that everybody has

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Speaker 4: access to their basic needs, I find it very hard

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Speaker 4: to see how value chains can be constructed or how

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Speaker 4: a shortage of polyethylene or other plastics can be circumvented,

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Speaker 4: especially poly ethylene near I'm concerned about because of the

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Speaker 4: disproportioned impact. And we briefly touched upon Hey, if twelve

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Speaker 4: percent of polymers are cut off, polymer exports from the

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Speaker 4: Middle East and the feed stocks are cut off. But

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Speaker 4: that's only a part of the story. There are many

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Speaker 4: angles here to take overall impact obviously, without a doubt,

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Speaker 4: will be sizeable. How sizable time will tell. But I

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Speaker 4: cannot think of alternatives to the problem we would be facing,

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Speaker 4: which is packaging, getting stuff from A to B, making

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Speaker 4: sure that stuff is conserved. So if anybody knows in

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Speaker 4: the audience, please let us know in the commons. Yeah

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Speaker 4: to learn.

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Speaker 2: So okay, on that note, what are we seeing now

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Speaker 2: in terms of poly ethylene availability? So I mentioned that

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Speaker 2: we have seen some crackers in Asia who have had

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Speaker 2: to reduce their refining output. Are we seeing prices start

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Speaker 2: to rise? Are we seeing outright shortages? What are you

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Speaker 2: observing in the market so far?

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Speaker 4: So I would kick this off by saying that everything

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Speaker 4: happens with a significant delay, and especially now, voyages from

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Speaker 4: the Middle East Gulf to South Korea Japan take about

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Speaker 4: eighteen to twenty five days, and while we're kind of

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Speaker 4: now entering that period. So if you look at crude

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Speaker 4: oil imports that went to South Korea, for example, you

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Speaker 4: could see them still spiking in the second week of March,

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Speaker 4: just because a lot of ships departed in late February,

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Speaker 4: whether or not in anticipation of this happening, but there

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Speaker 4: is a spike in the second week of March, so

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Speaker 4: on a physical side, to me, it seems we have

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Speaker 4: seen comparatively little impact yet I think most of this

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Speaker 4: will really materialize around early April, and from there on

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Speaker 4: it gets worse pretty quickly. Also one importance note here,

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Speaker 4: and people can again pitch in in the comments, but

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Speaker 4: polyethylene markets are relatively opaque when it comes to the

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Speaker 4: exact availability. So we talk a lot about run rates

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Speaker 4: even demand. Right, One very cliche topic that's regurgitated a

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Speaker 4: lot is demand in Europe is lookwarm. But if you

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Speaker 4: look at apparent demand, which is trade plus some production

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Speaker 4: run rate assumptions that are reasonable and based on company statements,

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Speaker 4: you see that demand is pretty stable. So my point

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Speaker 4: here is that demand, how much is consumed in the

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Speaker 4: first place, is a relatively obscure topic in the world

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Speaker 4: of polyethylene and plastics, because if you look at what

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Speaker 4: polyethylene consumption means, you have a lot hundreds thousands per

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Speaker 4: market of small plastic converters. They take those pellets and

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Speaker 4: they turn them into usable plastics. And to me, it

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Speaker 4: seems that data collection there may not be as well

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Speaker 4: developed as for let's say, oil refiners. Or maybe I'm

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Speaker 4: just ignorant about it, but that's been my observation so

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Speaker 4: far in the industry that demand numbers are hard to

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Speaker 4: get by. So, circling this back to where we're at

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Speaker 4: right now, three four weeks into this scenario, i'd be

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Speaker 4: careful with any concrete data points you're seeing, or any

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Speaker 4: general statements about demand being down, about supply being cut

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Speaker 4: force measures. For sure, we've seen an incredible high amount

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Speaker 4: of statements of production being cut. We can also get

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Speaker 4: into the details of which markets how much. But if

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Speaker 4: you look at across Asia, you've had about thirty to

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Speaker 4: forty crackers probably that have made statements in one way,

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Speaker 4: shape or form quite often though that just pertains to

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Speaker 4: production curtailments and not per se a full shutdown or

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Speaker 4: force measures, meaning that they cannot guarantee that they can

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Speaker 4: supply their contractors with whatever the contract stipulates. Very long story,

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Speaker 4: slightly less long. So far, my take is the impact

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Speaker 4: has been relatively limited on the material front, we have

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Speaker 4: seen price increases by the way, especially on the NAFTA

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Speaker 4: front in Asia, but I would be very surprised if

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Speaker 4: this does not deteriorate very significantly over the next two

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Speaker 4: to three weeks.

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Speaker 3: By the way, I genuinely wasn't sure about this. There

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Speaker 3: is polyethylene futures the trade on the dally On Commodity Exchange.

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Speaker 3: We have quotes on this. You could see they're traded

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Speaker 3: in lots of five metric tons so in USD and

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Speaker 3: in the beginning of the year it looks like they

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Speaker 3: were trading at around nine hundred and twenty five dollars

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Speaker 3: for five metric tons of polyethylene. Now around thirteen hundred dollars,

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Speaker 3: so the price has already surged massively. I'm curious though,

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Speaker 3: like when we think about the market for some of

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Speaker 3: these chemicals that you track, how much is it sort

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Speaker 3: of open liquid markets versus long term contracts, et cetera,

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Speaker 3: that you know, sort of dark prices that the public

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Speaker 3: would never see because it's an arrangement between a producer

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Speaker 3: and a specific buyer, et cetera, versus more clearing house model.

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Speaker 3: Like talk to us about pricing transparency that we have

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Speaker 3: in this market.

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Speaker 4: Ooh yeah, I love it. Just quick disclaimer here, there's

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Speaker 4: subtopics that I know more of and our topics that

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Speaker 4: I know less about. This falls into the category of

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Speaker 4: the latter. But to my understanding, when it comes to

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Speaker 4: prices and contracts in the polymer markets, the vast majority

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Speaker 4: is stipulated by our contracts, although they're typically relatively short

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Speaker 4: lived on a monthly quarterly basis. That's observation. I may

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Speaker 4: be wrong, and in terms of the spot market, they're

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Speaker 4: relatively small, but the spot market is real. But the

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Speaker 4: spot market is usually where you see those price distortions

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Speaker 4: firstly showing up right, And when it comes to the

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Speaker 4: first three to four weeks, especially, this week has been

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Speaker 4: relatively This week actually had quite a phenomenon because I

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Speaker 4: just checked the prices an hour ago and I was

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Speaker 4: surprised by polyethylene in East Asia apparently stagnating over the

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Speaker 4: past week, which to me, either something is wrong with

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Speaker 4: the prices that I was looking at or some of

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Speaker 4: my theoretical underpinnings are slightly off. So I'm curious about

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Speaker 4: that for the next couple of days.

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Speaker 2: Last weeks, didn't that happen during COVID as well? Wasn't

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Speaker 2: there a big arbitrage between like polyethylene prices in Europe

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Speaker 2: and the US versus Asia. There seem to be these

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Speaker 2: regional differences one hundred percent.

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Speaker 4: It depends on which part of the value chain you

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Speaker 4: look at and whether you're looking at margins, which is

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Speaker 4: what most companies are really curious about, right, how much

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Speaker 4: profit can I actually make out of this versus prices. So,

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Speaker 4: if you talk about polyethylene prices, for example, they're comparatively

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Speaker 4: low in Asia compared to Europe. The US is also low,

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Speaker 4: but the US also only pays a fraction of deproduction

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Speaker 4: costs because US is ethane or gas based, Asia and

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Speaker 4: Europe are largely NAFTA based. And the reason, by the way,

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Speaker 4: it is an important asterisk, almost going into a side tentionineer,

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Speaker 4: but it's very common within our industry to talk about

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Speaker 4: how ethane gas based production is more competitive, is cheaper.

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Speaker 4: But one of the principal reasons why this is the

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Speaker 4: case is because you only need one point two tons

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Speaker 4: of ethane to produce one ton of ethylene, whereas if

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Speaker 4: you produce ethylene vi enofta, you need about three point

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Speaker 4: two tons of nafta. So you just need a lot

431
00:22:56,280 --> 00:22:58,560
Speaker 4: more feed stock, and obviously you get a lot of byproducts.

432
00:22:58,920 --> 00:23:01,400
Speaker 4: But then for NEFTA ranking in Europe and Asia, their

433
00:23:01,440 --> 00:23:05,119
Speaker 4: competitiveness also hinges a lot on what the price movements

434
00:23:05,160 --> 00:23:06,400
Speaker 4: are of those byproducts.

435
00:23:06,560 --> 00:23:08,800
Speaker 3: Just as a side note, by the way, I'm looking

436
00:23:08,880 --> 00:23:12,800
Speaker 3: at the European naphtha swap of this trades in the

437
00:23:12,920 --> 00:23:17,240
Speaker 3: NYMEX that is at eight hundred and forty two dollars

438
00:23:17,400 --> 00:23:21,240
Speaker 3: per metric ton right now, but that was around four

439
00:23:21,359 --> 00:23:23,439
Speaker 3: hundred and ninety six at the beginning of the year.

440
00:23:23,560 --> 00:23:26,560
Speaker 3: So all of these different chemical polymers that you're talking

441
00:23:26,600 --> 00:23:30,200
Speaker 3: about massive spikes obviously in the Big spike obviously since

442
00:23:30,280 --> 00:23:33,240
Speaker 3: the start of the war. What does it mean when

443
00:23:33,359 --> 00:23:36,880
Speaker 3: force measure is declared? What is that actually entail?

444
00:23:37,560 --> 00:23:42,800
Speaker 4: You tell me, no, it depends a lot. Usually, again,

445
00:23:43,359 --> 00:23:46,480
Speaker 4: we like to talk a lot in certain terms. I

446
00:23:46,560 --> 00:23:49,560
Speaker 4: think a force measure colloquially is implied to mean, oh,

447
00:23:49,640 --> 00:23:51,960
Speaker 4: production is fully cut. It kind of depends. So to

448
00:23:52,040 --> 00:23:54,920
Speaker 4: give you one concrete example, OK, one, what chemicals in

449
00:23:55,119 --> 00:23:58,919
Speaker 4: China has, amongst otter is two very large crackers two

450
00:23:58,960 --> 00:24:01,879
Speaker 4: point two million tons in two total in Yuantai, Shandong region,

451
00:24:02,080 --> 00:24:05,400
Speaker 4: hopefully not butchering the pronunciation too much. They declared force

452
00:24:05,480 --> 00:24:07,560
Speaker 4: measure for their supplies to the Middle East. So I

453
00:24:07,640 --> 00:24:09,760
Speaker 4: looked at this and I was what does this mean?

454
00:24:09,840 --> 00:24:12,280
Speaker 4: So you dig further, try to find something specific. The

455
00:24:12,400 --> 00:24:16,160
Speaker 4: only thing I could find publicly announced is they're declaring

456
00:24:16,200 --> 00:24:18,000
Speaker 4: force measure on their supplies to the Middle East, which

457
00:24:18,000 --> 00:24:20,119
Speaker 4: to me was very interesting because in the first place,

458
00:24:20,600 --> 00:24:23,280
Speaker 4: very few Chinese producers are suppliers to the Middle East

459
00:24:23,320 --> 00:24:26,200
Speaker 4: of certain chemicals in the first place. So the bottom

460
00:24:26,240 --> 00:24:28,679
Speaker 4: line here being that when you read force mature, at

461
00:24:28,760 --> 00:24:32,520
Speaker 4: least that's what I'm doing. If I don't find anything specific,

462
00:24:33,560 --> 00:24:35,639
Speaker 4: it's a big question mark, and I usually assume it

463
00:24:35,720 --> 00:24:38,080
Speaker 4: means reduced run rates. Question is then also by how

464
00:24:38,160 --> 00:24:40,439
Speaker 4: much kind of a floor for a lot of crackers

465
00:24:40,520 --> 00:24:44,280
Speaker 4: is fifty to sixty percent of their total capacity? Below that,

466
00:24:44,520 --> 00:24:47,440
Speaker 4: it quite often is said it gets uneconomical. But it

467
00:24:47,560 --> 00:24:49,160
Speaker 4: is a big question mark to me at least.

468
00:24:49,359 --> 00:24:51,639
Speaker 3: So this came up in the context of jet fuel.

469
00:24:51,720 --> 00:24:54,840
Speaker 3: But the sort of the implied barrel price of jet

470
00:24:54,920 --> 00:24:57,240
Speaker 3: fuel is higher than what a barrel of oil is

471
00:24:57,280 --> 00:24:59,840
Speaker 3: trading for right now because of this dynamic where there

472
00:24:59,840 --> 00:25:03,199
Speaker 3: are finers are running slow because it's costly to actually

473
00:25:03,280 --> 00:25:05,920
Speaker 3: have to straight up shut down. Can you talk about

474
00:25:05,960 --> 00:25:08,440
Speaker 3: that in the context of some of these chemicals. Does

475
00:25:08,480 --> 00:25:11,440
Speaker 3: the same phenomenon apply that it is a very costly

476
00:25:11,560 --> 00:25:14,760
Speaker 3: business choice to actually shut down the refinery? And do

477
00:25:14,880 --> 00:25:18,600
Speaker 3: we see a widening spread between where the price of

478
00:25:18,680 --> 00:25:21,000
Speaker 3: oil is right now in the implied price of oil

479
00:25:21,040 --> 00:25:22,080
Speaker 3: by the end product price.

480
00:25:22,560 --> 00:25:25,320
Speaker 4: Yeah, that's a great question. If I'm not mistaken. The

481
00:25:25,359 --> 00:25:28,280
Speaker 4: spread has increased a lot over the past three weeks. Okay,

482
00:25:28,400 --> 00:25:31,520
Speaker 4: both in Europe and in Asia, but especially NAFTA price

483
00:25:31,600 --> 00:25:36,560
Speaker 4: in Asia have searched. So here the following hypothesis. To me,

484
00:25:36,680 --> 00:25:39,560
Speaker 4: it seems based on what we've talked about earlier, how

485
00:25:39,640 --> 00:25:42,560
Speaker 4: chemicals are used, with a lot of it going into packaging.

486
00:25:42,560 --> 00:25:46,240
Speaker 4: And let's define actually how much. So polyethylene consumes about

487
00:25:46,640 --> 00:25:49,280
Speaker 4: sixty to seventy percent of ethylene, which again is the

488
00:25:49,359 --> 00:25:52,360
Speaker 4: main product that we're getting from NAFTA cranking. So let's

489
00:25:52,440 --> 00:25:55,560
Speaker 4: just say close to more than a half of NAFTA

490
00:25:55,640 --> 00:25:57,879
Speaker 4: in one way, shape or form is used for polyethylene

491
00:25:57,920 --> 00:26:00,440
Speaker 4: and those type of chemicals that are used for hankeraging.

492
00:26:01,080 --> 00:26:03,639
Speaker 4: So half of it is pretty much dictated ish by

493
00:26:03,680 --> 00:26:06,280
Speaker 4: the packaging sector own reality is more complicated than maybe

494
00:26:06,280 --> 00:26:08,120
Speaker 4: we can cut it to one third or so. It's

495
00:26:08,119 --> 00:26:11,000
Speaker 4: a huge chunk right away. And to me, again, dead

496
00:26:11,080 --> 00:26:14,200
Speaker 4: sector seems pretty non fungible. It's very hard to really

497
00:26:14,280 --> 00:26:16,399
Speaker 4: destroy a lot of demand within an industry. If we

498
00:26:16,440 --> 00:26:19,080
Speaker 4: talk about jet field des on gasoline, on the other hand,

499
00:26:19,359 --> 00:26:22,840
Speaker 4: we can introduce Carlos Sundays, we can introduce or people well,

500
00:26:22,880 --> 00:26:25,680
Speaker 4: at the end of the day, if flight tickets just

501
00:26:25,800 --> 00:26:27,399
Speaker 4: become too expensive.

502
00:26:27,080 --> 00:26:28,960
Speaker 3: Side to another flights this period.

503
00:26:30,400 --> 00:26:33,040
Speaker 4: So to me, it seems that diesel gasoline and jet

504
00:26:33,080 --> 00:26:36,360
Speaker 4: fuel have more wiggle room for demand destruction. Thanta, That's

505
00:26:36,400 --> 00:26:39,480
Speaker 4: my current hypothesis. And again maybe I may be proven

506
00:26:39,560 --> 00:26:42,240
Speaker 4: wrong on that, because it's also the first time for

507
00:26:42,359 --> 00:26:44,680
Speaker 4: me being in such a scenario, and I mean for

508
00:26:44,840 --> 00:26:47,480
Speaker 4: all of us in a way. But so when it

509
00:26:47,520 --> 00:26:49,800
Speaker 4: comes to the spread between crude oil and AFTA for

510
00:26:49,920 --> 00:26:54,399
Speaker 4: both Asia and Europe, my expectation is that, well, the

511
00:26:54,560 --> 00:26:57,320
Speaker 4: argument seems to be very strong that death will increase

512
00:26:57,400 --> 00:27:00,920
Speaker 4: over the next week's potentially months enough. A big question

513
00:27:01,119 --> 00:27:04,040
Speaker 4: also that I'm just throwing into the room is how

514
00:27:04,200 --> 00:27:07,320
Speaker 4: viable is it for refiners to actually shift more toward

515
00:27:07,400 --> 00:27:10,919
Speaker 4: NAFTA production, both from an economical and just engineering perspective, right,

516
00:27:10,960 --> 00:27:13,200
Speaker 4: because within the industry we often talk about those things

517
00:27:13,200 --> 00:27:15,880
Speaker 4: as a given NAFTA production is kind of fixed, which

518
00:27:15,960 --> 00:27:19,040
Speaker 4: to an extent is true, but also not true at

519
00:27:19,040 --> 00:27:21,800
Speaker 4: a certain point. And maybe there are some chemical engineers

520
00:27:21,800 --> 00:27:23,800
Speaker 4: here that note is better than I do. But at

521
00:27:23,840 --> 00:27:26,560
Speaker 4: a certain point, it may even become feasible to switch

522
00:27:26,680 --> 00:27:29,680
Speaker 4: some road fuel production toward NAFTA production if in the

523
00:27:30,000 --> 00:27:32,560
Speaker 4: demand destruction on gasoline becomes stronger.

524
00:27:32,359 --> 00:27:35,159
Speaker 2: Enough to I want to go back to you mentioned

525
00:27:35,280 --> 00:27:38,240
Speaker 2: China for a second, and I remember seeing headlines about

526
00:27:38,680 --> 00:27:42,760
Speaker 2: China's petrochemical boom and worries about a glut in the market,

527
00:27:42,840 --> 00:27:45,320
Speaker 2: and I think some of those headlines were like two

528
00:27:45,440 --> 00:27:48,879
Speaker 2: months ago, Yeah, can China pick up some of this production?

529
00:27:49,000 --> 00:27:53,520
Speaker 2: I assume it's getting some naphtha from I would guess

530
00:27:53,680 --> 00:27:56,960
Speaker 2: Russia or Iran at this point, Like what's going on there?

531
00:27:57,600 --> 00:27:57,800
Speaker 3: Yeah?

532
00:27:57,960 --> 00:28:02,040
Speaker 4: Big question? Short term? No, short term minus if you

533
00:28:02,320 --> 00:28:05,840
Speaker 4: would have a lot of production within refined be shifting

534
00:28:05,920 --> 00:28:09,720
Speaker 4: away from gasoline to NAFTA minus de scenario, And again

535
00:28:09,720 --> 00:28:11,879
Speaker 4: I don't know how technically feasible that is. Or economically

536
00:28:12,000 --> 00:28:14,000
Speaker 4: for a lot of refiners. But other than that, I

537
00:28:14,119 --> 00:28:16,560
Speaker 4: don't see any possible way where you could compensate for that, right,

538
00:28:16,600 --> 00:28:20,040
Speaker 4: because let's be specific, So we're talking about again assuming

539
00:28:20,119 --> 00:28:23,480
Speaker 4: a full disruption here we talk about roughly seventeen to

540
00:28:23,560 --> 00:28:27,800
Speaker 4: eighteen million tons disappearing from the Middle East. We talk

541
00:28:27,960 --> 00:28:32,680
Speaker 4: about South Korea, Japan, so major Asian players, to be specific,

542
00:28:32,800 --> 00:28:38,080
Speaker 4: we have South Korea first, Japan, Taiwan, Singapore, India, Thailand

543
00:28:38,520 --> 00:28:43,560
Speaker 4: and Malaysia and Indonesia. Those I think should be eight. Now,

544
00:28:43,640 --> 00:28:47,200
Speaker 4: if you take them together, they probably have an ethlene

545
00:28:47,240 --> 00:28:51,560
Speaker 4: production capacity of around forty five million tons ISH. So

546
00:28:51,920 --> 00:28:54,720
Speaker 4: China and them together is about one hundred million tons,

547
00:28:54,840 --> 00:28:58,000
Speaker 4: China sixty million, those others about forty million together. Out

548
00:28:58,040 --> 00:29:00,800
Speaker 4: of this forty million depending on again what happens, but

549
00:29:01,520 --> 00:29:06,360
Speaker 4: probably weren't thirty million. You could potentially discard is it.

550
00:29:07,040 --> 00:29:08,720
Speaker 4: Don't quote me on that exact number, but just to

551
00:29:08,760 --> 00:29:12,200
Speaker 4: give a ballpark, right, I don't see any possible way

552
00:29:12,280 --> 00:29:14,560
Speaker 4: how you could compensate for that. You have some wiggle

553
00:29:14,640 --> 00:29:17,640
Speaker 4: room because some cracking facilities were operating at lower rates.

554
00:29:17,840 --> 00:29:20,719
Speaker 4: You can compensate there in the US especially, But if

555
00:29:20,760 --> 00:29:23,080
Speaker 4: you assume, for example, that the US was running at

556
00:29:23,080 --> 00:29:26,560
Speaker 4: about eighty five percent before and they would go all

557
00:29:26,600 --> 00:29:29,120
Speaker 4: the way up to ninety five hundred percent now, so

558
00:29:29,400 --> 00:29:31,840
Speaker 4: ten to fifteen percent difference. That's about four to six

559
00:29:31,920 --> 00:29:35,120
Speaker 4: million tons added. So that's basically one tenth of what

560
00:29:35,320 --> 00:29:37,840
Speaker 4: more one eighth of what would be lost in the

561
00:29:37,880 --> 00:29:40,160
Speaker 4: most extreme scenario. And when it comes to China, the

562
00:29:40,240 --> 00:29:43,560
Speaker 4: thing is that those crackers are large projects. They take time,

563
00:29:43,720 --> 00:29:46,280
Speaker 4: and the world at large had an incredible, incredibly large

564
00:29:46,320 --> 00:29:48,800
Speaker 4: pipeline for twenty twenty six, which is ironic and which

565
00:29:48,840 --> 00:29:52,240
Speaker 4: is why I emphasized polyethlene so much, because the amount

566
00:29:52,280 --> 00:29:55,640
Speaker 4: of projects like World Skill projects that are very well

567
00:29:55,680 --> 00:29:58,280
Speaker 4: covered and no uncertainty about whether they would come online

568
00:29:58,360 --> 00:30:01,520
Speaker 4: or not until now there were set to come and

569
00:30:01,640 --> 00:30:04,160
Speaker 4: now they seem largely either off the table or a

570
00:30:04,200 --> 00:30:07,240
Speaker 4: big question mark. So I don't see anyway in the

571
00:30:07,280 --> 00:30:10,040
Speaker 4: short term to compensate for such an extreme shortfall if

572
00:30:10,080 --> 00:30:13,120
Speaker 4: that were really to manifest to the utmost extent.

573
00:30:13,400 --> 00:30:15,520
Speaker 2: That's a really good example of how these short term

574
00:30:15,560 --> 00:30:18,080
Speaker 2: disruptions can linger for years and years and years. Okay,

575
00:30:18,120 --> 00:30:20,400
Speaker 2: one other question on trying to fill the gap in

576
00:30:20,520 --> 00:30:24,200
Speaker 2: supply what about recycling existing plastics. I mean, we've been

577
00:30:24,240 --> 00:30:26,000
Speaker 2: told for years and years and years the world is

578
00:30:26,040 --> 00:30:28,760
Speaker 2: a wash in plastics. Like, okay, let's do something with that.

579
00:30:29,320 --> 00:30:33,160
Speaker 4: Yeah, that's an excellent question. I don't see why recycling

580
00:30:33,200 --> 00:30:35,080
Speaker 4: should not get a major boost from this. If this

581
00:30:35,200 --> 00:30:38,000
Speaker 4: persists to me, that seems like a very reasonable solution.

582
00:30:38,080 --> 00:30:41,120
Speaker 4: There are obviously a lot of asterisks where recycling as

583
00:30:41,160 --> 00:30:44,360
Speaker 4: its own fair share of complications in terms of having

584
00:30:44,440 --> 00:30:47,720
Speaker 4: to firstly distill the different types of streams. You also

585
00:30:47,800 --> 00:30:51,600
Speaker 4: need production facilities for this, which also again needs time

586
00:30:51,680 --> 00:30:55,320
Speaker 4: to be built. I'm oddly unaware of the existing utilization

587
00:30:55,440 --> 00:30:59,160
Speaker 4: rate or of the utilization rates of existing recycling facilities, but.

588
00:30:59,320 --> 00:31:03,560
Speaker 2: Which tells you something about the importance of recycling intromic

589
00:31:04,120 --> 00:31:05,240
Speaker 2: chemical analyst career.

590
00:31:05,320 --> 00:31:09,320
Speaker 4: But yeah, exactly right, it's very much under fringes. I

591
00:31:09,920 --> 00:31:13,600
Speaker 4: very peripherally aware of it. But when I think about

592
00:31:13,640 --> 00:31:16,560
Speaker 4: recycling facilities that I read on more anecdotally, they're usually

593
00:31:16,600 --> 00:31:18,560
Speaker 4: in the range of a couple of tens of thousands

594
00:31:18,720 --> 00:31:23,040
Speaker 4: to maybe one hundred thousand tons per year of production capacity,

595
00:31:23,280 --> 00:31:26,160
Speaker 4: which compares to a world scale cracker that's usually one

596
00:31:26,200 --> 00:31:28,200
Speaker 4: to two million tons. Right, so that's an order of

597
00:31:28,200 --> 00:31:30,120
Speaker 4: magnude lower. That's said, if you look at the total

598
00:31:30,240 --> 00:31:34,040
Speaker 4: share of global polymers that are in circulation that come

599
00:31:34,080 --> 00:31:36,720
Speaker 4: from recycling, I find it hard to give an exact number,

600
00:31:36,840 --> 00:31:39,360
Speaker 4: but maybe one tenth or so because it depends on

601
00:31:39,400 --> 00:31:42,200
Speaker 4: the substream. And again it's not my forte per se.

602
00:31:42,880 --> 00:31:46,880
Speaker 4: It's a reasonable amount, and I could definitely see, especially

603
00:31:47,680 --> 00:31:51,160
Speaker 4: within the timeframe of a couple of months, that this

604
00:31:51,320 --> 00:31:53,400
Speaker 4: would gather a lot of speed or it would become

605
00:31:53,440 --> 00:31:56,480
Speaker 4: priority to fill some gaps somewhere. But again it probably

606
00:31:56,520 --> 00:31:59,640
Speaker 4: falls short very significantly from really fixing the problem.

607
00:32:15,480 --> 00:32:18,920
Speaker 3: When we did a recent episode about natural gas, one

608
00:32:19,040 --> 00:32:22,560
Speaker 3: of the winners, at least in the short term was coal,

609
00:32:22,760 --> 00:32:26,640
Speaker 3: and that contries that can't get natural gas, they're gonna

610
00:32:26,680 --> 00:32:29,520
Speaker 3: turn to coal for energy, And you see coal prices

611
00:32:29,600 --> 00:32:33,400
Speaker 3: creeping up. What about cold liquefaction? And in the short

612
00:32:33,560 --> 00:32:36,000
Speaker 3: or medium term, I mean, you could turn coal into oil.

613
00:32:36,040 --> 00:32:38,280
Speaker 3: The Germans did that during World War Two and that's

614
00:32:38,280 --> 00:32:42,920
Speaker 3: still a thing. Can that in the medium term be uh,

615
00:32:43,480 --> 00:32:45,280
Speaker 3: just derive our plastics from coal?

616
00:32:45,600 --> 00:32:47,800
Speaker 4: Medium term? Sure, but I don't think medium term is

617
00:32:47,880 --> 00:32:50,040
Speaker 4: the problem here. Yeah, if we define medium.

618
00:32:50,120 --> 00:32:51,959
Speaker 3: Yeah, I guess right, right, that's not gonna help us,

619
00:32:52,880 --> 00:32:55,120
Speaker 3: right if we but like you know, if we say,

620
00:32:55,200 --> 00:32:57,800
Speaker 3: like you know, this is gonna re shape, like you know,

621
00:32:58,080 --> 00:33:00,560
Speaker 3: like the longer that this goes on, and we don't

622
00:33:00,600 --> 00:33:02,240
Speaker 3: know how long that this is going to go on,

623
00:33:03,120 --> 00:33:06,800
Speaker 3: could call at some point in the short to medium

624
00:33:07,000 --> 00:33:11,200
Speaker 3: term be part of the solution for the origin of

625
00:33:11,280 --> 00:33:12,960
Speaker 3: our plastic beautiful question.

626
00:33:13,440 --> 00:33:17,560
Speaker 4: I think the bigger questionnaire is well twofold. Firstly, if

627
00:33:17,600 --> 00:33:20,840
Speaker 4: this continues, will it reshape how the global chemical industry works?

628
00:33:21,400 --> 00:33:23,800
Speaker 4: And the second part is maybe have you already reached

629
00:33:23,840 --> 00:33:26,520
Speaker 4: that point? Because I think even if things were to

630
00:33:26,640 --> 00:33:29,720
Speaker 4: quote unquote normalize, whatever that may mean right now, I

631
00:33:29,760 --> 00:33:32,280
Speaker 4: think one major problem that we face is that the

632
00:33:32,360 --> 00:33:35,080
Speaker 4: perceived risk of passing through the strait of hormoos has changed,

633
00:33:35,720 --> 00:33:39,000
Speaker 4: and a lot of Asian producers were already on the

634
00:33:39,120 --> 00:33:41,120
Speaker 4: cusp of closing their business, and by a lot of

635
00:33:41,160 --> 00:33:44,560
Speaker 4: means South Korea, Japan, Taiwan, Singapore, especially if you take

636
00:33:44,600 --> 00:33:48,080
Speaker 4: them together we talk about soufth Korea has thirty million tons,

637
00:33:48,200 --> 00:33:50,560
Speaker 4: Japan six million tons, Singapore and Taiwan both three to

638
00:33:50,640 --> 00:33:53,640
Speaker 4: four million tons, so collectively close to thirty million tons.

639
00:33:54,120 --> 00:33:55,880
Speaker 4: It's a lot. Not all of it was said to

640
00:33:55,960 --> 00:33:58,880
Speaker 4: be closed, but to me, if I looked at the fundamentals,

641
00:33:58,920 --> 00:34:01,680
Speaker 4: it seemed reasonable to assumed that by twenty thirty, about

642
00:34:01,720 --> 00:34:03,480
Speaker 4: thirty to fifty percent of this could disappear.

643
00:34:03,920 --> 00:34:06,560
Speaker 3: So wait, sorry, why very long story short?

644
00:34:06,600 --> 00:34:10,080
Speaker 4: Because the overcapacity that was in the pipeline, especially for polyethylene,

645
00:34:10,200 --> 00:34:12,800
Speaker 4: was so severe that the case was very hard to

646
00:34:12,840 --> 00:34:14,400
Speaker 4: make for some units to stay in business.

647
00:34:14,480 --> 00:34:14,560
Speaker 2: Right.

648
00:34:14,800 --> 00:34:19,440
Speaker 4: My hypothesis here is that what's happening currently their increased

649
00:34:20,280 --> 00:34:23,640
Speaker 4: perception of risk through the strait of harmons for an

650
00:34:23,719 --> 00:34:26,359
Speaker 4: industry in a market that was already perceived to be well,

651
00:34:26,560 --> 00:34:31,359
Speaker 4: really going downhill pretty much could really lead a lot

652
00:34:31,400 --> 00:34:33,799
Speaker 4: of facilities to just close down over the next couple

653
00:34:33,840 --> 00:34:35,719
Speaker 4: of months quiet, and I would be very surprised if

654
00:34:35,760 --> 00:34:38,960
Speaker 4: that does not happen. Then the question becomes what happened? Well,

655
00:34:39,000 --> 00:34:42,960
Speaker 4: two questions here, firstly, what happens afterward if things indeed normalize,

656
00:34:43,840 --> 00:34:46,759
Speaker 4: and then secondly, for the entire pipeline that exists for

657
00:34:46,800 --> 00:34:48,560
Speaker 4: the next four to five years, A lot of it

658
00:34:48,760 --> 00:34:50,800
Speaker 4: was also in Asia or the Middle East and hinged

659
00:34:50,880 --> 00:34:54,160
Speaker 4: on feedstocks coming from the Middle East, what happens to

660
00:34:54,239 --> 00:34:59,960
Speaker 4: that and to go full circle here into your cold quest,

661
00:35:00,880 --> 00:35:02,800
Speaker 4: that's something I looked into and that I wondered. So

662
00:35:02,960 --> 00:35:06,160
Speaker 4: to put it into perspective, China right now has sixty

663
00:35:06,239 --> 00:35:10,480
Speaker 4: million tons of ethylene capacity. Roughly fifty million tons of

664
00:35:10,560 --> 00:35:13,240
Speaker 4: this is oil or gas based, so it comes from cracking.

665
00:35:13,320 --> 00:35:17,200
Speaker 4: Ten million tons comes from coal okay slash methanol. Side

666
00:35:17,200 --> 00:35:20,360
Speaker 4: note here also that because how it works is that

667
00:35:20,520 --> 00:35:22,920
Speaker 4: coal is converted to methanol, which is then converted to

668
00:35:22,960 --> 00:35:25,960
Speaker 4: ethylene or propylene. Methanol is also imported from the Middle East,

669
00:35:26,120 --> 00:35:29,160
Speaker 4: so that could also cut into that production there. But

670
00:35:29,920 --> 00:35:32,520
Speaker 4: when it comes to coal, it would need a really

671
00:35:32,680 --> 00:35:35,800
Speaker 4: huge push. So now we have ten million tons of ethylene,

672
00:35:35,840 --> 00:35:38,080
Speaker 4: we have another roughly three to four million tons in

673
00:35:38,120 --> 00:35:41,240
Speaker 4: the pipeline because China has been revitalizing that already before

674
00:35:41,320 --> 00:35:45,040
Speaker 4: the war. But the push again would be extremely significant.

675
00:35:45,080 --> 00:35:48,759
Speaker 4: You would be talking about basically three to four fold

676
00:35:48,840 --> 00:35:51,520
Speaker 4: quadrupling the sector over the next couple of years, right,

677
00:35:51,600 --> 00:35:54,839
Speaker 4: which in theory could happen, especially for a country such

678
00:35:54,840 --> 00:35:56,640
Speaker 4: as China, which has proven in the past time and

679
00:35:56,719 --> 00:35:59,920
Speaker 4: time again that it's very much capable of completely reva

680
00:36:00,120 --> 00:36:03,800
Speaker 4: being industries. But it would be a big push. I

681
00:36:03,880 --> 00:36:08,560
Speaker 4: think what's more likely to happen is three things. So firstly,

682
00:36:09,040 --> 00:36:12,120
Speaker 4: renewed again also depends obviously on how long the supplying

683
00:36:12,120 --> 00:36:13,839
Speaker 4: disruption is, but I think we're well on our way.

684
00:36:14,200 --> 00:36:18,520
Speaker 4: I think one renewed interest in the Western hemisphere, using

685
00:36:18,600 --> 00:36:21,600
Speaker 4: Western hemisphere here more broadly, because I would say for

686
00:36:21,680 --> 00:36:23,560
Speaker 4: the US there's also a couple of asterisks in terms

687
00:36:23,600 --> 00:36:26,360
Speaker 4: of the political environment where that is not considered to

688
00:36:26,400 --> 00:36:29,239
Speaker 4: be too volatile. That out of the way, though, if

689
00:36:29,239 --> 00:36:32,840
Speaker 4: you talk about chemicals and the potential there, there was

690
00:36:32,920 --> 00:36:36,920
Speaker 4: a significant slowdown because of this overcapacity. But US producers

691
00:36:37,000 --> 00:36:40,120
Speaker 4: right now are having a heyday, and even if this

692
00:36:40,280 --> 00:36:42,920
Speaker 4: does not continue for a long time, I think again

693
00:36:43,000 --> 00:36:46,640
Speaker 4: that this heightened risk, or this heightened perception of risk

694
00:36:46,719 --> 00:36:49,640
Speaker 4: at hormos, really shifts a lot of production potentially to

695
00:36:49,719 --> 00:36:52,320
Speaker 4: the US. So I'd be surprised if you would not

696
00:36:52,360 --> 00:36:54,960
Speaker 4: see a lot of renewed interest in US ethane, in

697
00:36:55,160 --> 00:36:55,920
Speaker 4: US chemicals.

698
00:36:56,280 --> 00:36:58,800
Speaker 2: Yeah, this was going to be my next question. Actually,

699
00:36:58,880 --> 00:37:02,080
Speaker 2: So I'm looking at a chart right. This is going

700
00:37:02,160 --> 00:37:05,000
Speaker 2: back to the beginning of our conversation. So this is

701
00:37:05,080 --> 00:37:09,840
Speaker 2: a chart of sensitivity of different oil or fuel products

702
00:37:10,000 --> 00:37:11,120
Speaker 2: to demand destruction.

703
00:37:11,520 --> 00:37:14,440
Speaker 3: I'm cheating, like on an exam. You can't see it.

704
00:37:14,480 --> 00:37:16,600
Speaker 3: I'm in the studio. I'm leaning over and looking at

705
00:37:16,680 --> 00:37:18,600
Speaker 3: Tracy's Lovetimes like I needed to get a look at it.

706
00:37:19,160 --> 00:37:23,040
Speaker 2: So it actually it has now, JP Morgan, Yeah, so

707
00:37:23,160 --> 00:37:26,640
Speaker 2: it has. You know, jet fuel is pretty sensitive because,

708
00:37:26,719 --> 00:37:28,520
Speaker 2: as we were talking about earlier, if the price of

709
00:37:28,719 --> 00:37:32,000
Speaker 2: jet fuel goes up, flights tend to get curtailed. It

710
00:37:32,080 --> 00:37:35,279
Speaker 2: also says that NAPA is pretty sensitive. And one of

711
00:37:35,320 --> 00:37:39,120
Speaker 2: the reasons NAPA apparently is sensitive is because if prices

712
00:37:39,200 --> 00:37:43,040
Speaker 2: for NAP that go up, then petrochemical plants can substitute ethane,

713
00:37:43,880 --> 00:37:47,040
Speaker 2: which it seems we're starting to see. I'm also reading

714
00:37:47,040 --> 00:37:49,600
Speaker 2: a Bloomberg sty I'm doing my research for this episode. Wow,

715
00:37:49,920 --> 00:37:52,239
Speaker 2: we're in the middle of the episode. But regardless of that,

716
00:37:52,560 --> 00:37:55,960
Speaker 2: there's a Bloomberg story that saying that US producers of

717
00:37:56,000 --> 00:38:00,800
Speaker 2: polyethylene are buying more ethylene to make plastics. What's the

718
00:38:00,960 --> 00:38:07,080
Speaker 2: substitutability of ethane versus naphtha? Because you touched on this earlier,

719
00:38:07,120 --> 00:38:08,799
Speaker 2: but I really want to drill down on this point.

720
00:38:09,360 --> 00:38:13,120
Speaker 4: Not very high. Okay, So two things here I realized

721
00:38:13,160 --> 00:38:15,040
Speaker 4: I like making a lot of lists without completing them.

722
00:38:15,080 --> 00:38:16,719
Speaker 4: But maybe you can get full circle on the other

723
00:38:16,760 --> 00:38:19,719
Speaker 4: topics later. But on this two things. So first is

724
00:38:20,160 --> 00:38:23,800
Speaker 4: just technical substitution. So the furnaces that are used for

725
00:38:23,920 --> 00:38:26,759
Speaker 4: ethane and NAFTA, they're pretty different in a lot of

726
00:38:26,800 --> 00:38:30,600
Speaker 4: ways that they're configured, So switching between those two is

727
00:38:31,120 --> 00:38:34,399
Speaker 4: pretty difficult, very specifically. One major problem is the type

728
00:38:34,440 --> 00:38:36,319
Speaker 4: of products that you get from both, right, So if

729
00:38:36,320 --> 00:38:39,640
Speaker 4: you crack ethane, you principally only get ethylene in notable amounts,

730
00:38:39,640 --> 00:38:41,920
Speaker 4: Whereas if you crack n after you get ethylene, you probolene,

731
00:38:41,960 --> 00:38:43,040
Speaker 4: you get butted eye, and you get.

732
00:38:42,960 --> 00:38:45,000
Speaker 2: Benzy byproducts you mentioned earlier.

733
00:38:44,880 --> 00:38:47,319
Speaker 4: Exactly right, and they need to be separated. And there

734
00:38:47,400 --> 00:38:50,400
Speaker 4: is a whole post this cracking section for that that

735
00:38:50,560 --> 00:38:54,400
Speaker 4: just vastly differs for enough to cracker versus ethane. I

736
00:38:54,520 --> 00:38:58,200
Speaker 4: think one common point of confusion is, so you have

737
00:38:58,360 --> 00:39:01,400
Speaker 4: three major oil or gas EATUX streams, you have NOFTA,

738
00:39:01,640 --> 00:39:05,400
Speaker 4: you have LPG and ethane, And I would group LPG

739
00:39:05,520 --> 00:39:07,920
Speaker 4: and ENOUGHTA as being more together than alpg and ethane,

740
00:39:07,960 --> 00:39:10,480
Speaker 4: despite the fact that LPG and ethane are colloquially kind

741
00:39:10,480 --> 00:39:13,320
Speaker 4: of referred to as being gas based, but LPG also

742
00:39:13,440 --> 00:39:17,839
Speaker 4: gives a lot of byproducts, so the substitution possibility there

743
00:39:18,000 --> 00:39:19,840
Speaker 4: is higher than for ethane. And also if you just

744
00:39:19,880 --> 00:39:23,960
Speaker 4: look at the practicality of it, they're comparatively outside of

745
00:39:24,040 --> 00:39:26,319
Speaker 4: the US and the Middle East, they're not that many

746
00:39:26,400 --> 00:39:28,960
Speaker 4: crackers that use ethane, and if they use ethane, they

747
00:39:29,000 --> 00:39:31,760
Speaker 4: typically fully use ethane, not exclusively. There are some exceptions,

748
00:39:32,360 --> 00:39:35,080
Speaker 4: such as I think the one Hua Chemical Untie cracker

749
00:39:35,200 --> 00:39:37,480
Speaker 4: that I mentioned earlier one of those actually runs partially

750
00:39:37,520 --> 00:39:40,960
Speaker 4: on ethane partially on NOFTA. But typically if a cracker

751
00:39:41,000 --> 00:39:43,240
Speaker 4: fully runs on ethane, it fully runs on ethane, whereas

752
00:39:43,440 --> 00:39:45,520
Speaker 4: for a lot of NAFTA crackers they play around with

753
00:39:45,640 --> 00:39:47,880
Speaker 4: the LPG share depending on the price movements.

754
00:39:48,360 --> 00:39:51,239
Speaker 3: I've learned a lot from this conversation. I would be

755
00:39:51,400 --> 00:39:54,719
Speaker 3: lying if I didn't say that. You know, I'm gonna

756
00:39:54,760 --> 00:39:57,200
Speaker 3: have to go back and look at what some of

757
00:39:57,280 --> 00:40:00,040
Speaker 3: these things are whatever, But just to help me we

758
00:40:00,320 --> 00:40:03,799
Speaker 3: conceptualized with some of these things are. I remember from

759
00:40:04,040 --> 00:40:07,399
Speaker 3: a Liberation day the trade fights in twenty twenty five.

760
00:40:07,840 --> 00:40:11,000
Speaker 3: One of the few things that the US exports to

761
00:40:11,160 --> 00:40:16,719
Speaker 3: China in mass other than soybeans, is ethane. I don't

762
00:40:16,800 --> 00:40:19,080
Speaker 3: know what is it? Can you just explain that? Why

763
00:40:19,160 --> 00:40:21,160
Speaker 3: do we have a lot of extra ethane? Why does

764
00:40:21,280 --> 00:40:22,680
Speaker 3: China need to get it from a lot of US?

765
00:40:22,760 --> 00:40:23,520
Speaker 3: And what does it go into?

766
00:40:23,680 --> 00:40:26,319
Speaker 4: It all depends on what we mean by a lot.

767
00:40:26,400 --> 00:40:27,839
Speaker 4: That's a very relative term.

768
00:40:28,719 --> 00:40:32,080
Speaker 3: I wouldn't know that about half of all US exports

769
00:40:32,080 --> 00:40:35,160
Speaker 3: of ethane, which is extracted from US shell guests, which

770
00:40:35,160 --> 00:40:37,560
Speaker 3: probably explains why we have a lot head to China.

771
00:40:37,640 --> 00:40:39,160
Speaker 3: So they what's the deal with that?

772
00:40:39,440 --> 00:40:43,200
Speaker 4: Yeah? So firstly, that mainly comes because the US is

773
00:40:43,200 --> 00:40:45,600
Speaker 4: a very large producer of shell gas, which yields a

774
00:40:45,640 --> 00:40:50,120
Speaker 4: lot of ethane LPG. And because the US has will

775
00:40:50,200 --> 00:40:53,759
Speaker 4: basically exceed it in its LPG ethane production what it

776
00:40:53,840 --> 00:40:57,120
Speaker 4: domestically needs, it has started to export a lot and

777
00:40:57,200 --> 00:40:59,640
Speaker 4: that's still ongoing. We still have some new terminals coming

778
00:40:59,680 --> 00:41:01,840
Speaker 4: up in twenty twenty six and beyond it will increase

779
00:41:01,880 --> 00:41:04,680
Speaker 4: the capacity for LPG and ethane to be exported. But

780
00:41:04,760 --> 00:41:07,000
Speaker 4: the reason why I answered this question skeptically initially is

781
00:41:07,000 --> 00:41:09,440
Speaker 4: because if you look at a total volumes you talk

782
00:41:09,480 --> 00:41:14,440
Speaker 4: about China, if I'm not mistaken, in twenty twenty five

783
00:41:14,760 --> 00:41:18,600
Speaker 4: imported around five or six million tons of ethane and

784
00:41:19,040 --> 00:41:21,520
Speaker 4: you can make one around five to six million tons

785
00:41:21,560 --> 00:41:23,680
Speaker 4: of ethylene from that, which is about ten percent of

786
00:41:23,760 --> 00:41:26,319
Speaker 4: China's production capacity, right, So is that a lot kind

787
00:41:26,360 --> 00:41:27,120
Speaker 4: of ishi?

788
00:41:27,880 --> 00:41:30,800
Speaker 3: So there's kind of a lot relative to US industry,

789
00:41:31,520 --> 00:41:33,960
Speaker 3: but it's not really a lot of the grand scheme

790
00:41:34,440 --> 00:41:36,920
Speaker 3: of how much China is using and produced.

791
00:41:37,000 --> 00:41:39,560
Speaker 4: And even for the US, this is probably if we

792
00:41:39,640 --> 00:41:42,640
Speaker 4: convert this into into barrels per day, it's probably around

793
00:41:42,760 --> 00:41:45,959
Speaker 4: two hundred to three hundred thousand barrels per day, which

794
00:41:46,040 --> 00:41:46,600
Speaker 4: is which.

795
00:41:46,440 --> 00:41:48,759
Speaker 3: Even this article I'm saying says about half of all

796
00:41:48,920 --> 00:41:52,120
Speaker 3: US exports of ethane go to China, which means this

797
00:41:52,320 --> 00:41:55,600
Speaker 3: is just a fraction of total ethane production.

798
00:41:55,360 --> 00:41:58,160
Speaker 4: In the US exactly. Okay, So that's I think the

799
00:41:58,440 --> 00:42:01,440
Speaker 4: entire ethane story is relatively if I can use the

800
00:42:01,520 --> 00:42:04,040
Speaker 4: word over hyped, because I think if you just re

801
00:42:04,200 --> 00:42:07,280
Speaker 4: read the articles, it seems like there's a huge wave

802
00:42:07,360 --> 00:42:10,479
Speaker 4: of new ethane crackers in Europe and in Asia, et cetera.

803
00:42:10,520 --> 00:42:12,759
Speaker 4: But if you really double down on which facilities they are,

804
00:42:12,800 --> 00:42:14,560
Speaker 4: and in Europe it's one, it's project.

805
00:42:20,080 --> 00:42:22,040
Speaker 3: Yeah, the ethane hype ends now.

806
00:42:22,120 --> 00:42:23,640
Speaker 4: I think, by the way, by the way, you guys

807
00:42:23,680 --> 00:42:25,239
Speaker 4: to actually finish one of my lists. Because I was

808
00:42:25,280 --> 00:42:27,880
Speaker 4: mentioned earlier how there are two points on us and

809
00:42:28,000 --> 00:42:30,719
Speaker 4: ethane and how much flexibility there is there. I think

810
00:42:30,760 --> 00:42:33,600
Speaker 4: another thing is just production volumes dead goes up, but

811
00:42:33,719 --> 00:42:36,760
Speaker 4: it goes up steadily. To me, it seems very unlikely

812
00:42:36,880 --> 00:42:39,480
Speaker 4: that production could search by that much that you could

813
00:42:39,520 --> 00:42:42,040
Speaker 4: really substitute for any notable amounts. So that's the second

814
00:42:42,120 --> 00:42:45,759
Speaker 4: point on ethane substituting for NEFTA. There's just there are

815
00:42:45,800 --> 00:42:48,879
Speaker 4: limited supplies for now that can go up, but also

816
00:42:49,000 --> 00:42:49,640
Speaker 4: that takes time.

817
00:42:50,880 --> 00:42:55,120
Speaker 2: I have an informal gauge of how bad things are,

818
00:42:55,320 --> 00:42:59,279
Speaker 2: and it's the sort of cocktail party question type thing.

819
00:42:59,400 --> 00:43:01,080
Speaker 2: But you know, when we're going out and speaking to

820
00:43:01,160 --> 00:43:04,560
Speaker 2: people now as a petrochemicals analyst, how many people are

821
00:43:04,600 --> 00:43:08,080
Speaker 2: starting to actually get very interested in the future of

822
00:43:08,120 --> 00:43:11,200
Speaker 2: plastics and maybe get very worried when they talk to you.

823
00:43:11,600 --> 00:43:13,439
Speaker 4: Both To assume I go out and speak to people,

824
00:43:14,840 --> 00:43:18,640
Speaker 4: we'll stop there, no pooh, I think the conversations have changed.

825
00:43:19,080 --> 00:43:21,520
Speaker 4: I mean more on an informal note here, right, because

826
00:43:21,520 --> 00:43:23,239
Speaker 4: I've been in the industry for four years, Like I

827
00:43:23,320 --> 00:43:26,799
Speaker 4: mentioned oil more broadly, two years in petrochemicals, two years

828
00:43:27,480 --> 00:43:29,919
Speaker 4: during the first two years, and maybe that was also

829
00:43:30,080 --> 00:43:32,439
Speaker 4: more than sidegeist. Back then twenty twenty two to twenty

830
00:43:32,520 --> 00:43:35,200
Speaker 4: twenty three, a lot of the conversations were about the

831
00:43:35,280 --> 00:43:39,680
Speaker 4: morality of working as an oil analyst. But now a

832
00:43:39,760 --> 00:43:42,000
Speaker 4: lot of that has dissipated, Or maybe I just don't

833
00:43:42,000 --> 00:43:45,000
Speaker 4: talk to those people anymore. I'm not sure, but I

834
00:43:45,080 --> 00:43:49,920
Speaker 4: think nowadays, people, to my observation, approach those questions a

835
00:43:50,000 --> 00:43:54,880
Speaker 4: lot more practically, and a lot of people are well

836
00:43:54,880 --> 00:43:57,120
Speaker 4: about petrochemicals. I think a lot of people are more

837
00:43:57,160 --> 00:44:00,360
Speaker 4: curious about the baseline understanding of how the industry works,

838
00:44:00,440 --> 00:44:03,280
Speaker 4: if they're curious at all, right, because I mean, quite frankly,

839
00:44:03,480 --> 00:44:06,279
Speaker 4: for a lot I strugg I talk to people from

840
00:44:06,360 --> 00:44:09,320
Speaker 4: time to time, but very rarely actually about petroc chemicals.

841
00:44:09,360 --> 00:44:12,520
Speaker 4: Also because it takes kind of a baseline denominator to

842
00:44:12,560 --> 00:44:17,840
Speaker 4: get into it, and I feel that you need to

843
00:44:17,880 --> 00:44:20,400
Speaker 4: bombard the counterparty with a lot of baseline information to

844
00:44:20,480 --> 00:44:22,640
Speaker 4: kind of get to an interesting point, to which I'm like,

845
00:44:22,719 --> 00:44:24,480
Speaker 4: they're probably also not that interested in.

846
00:44:24,600 --> 00:44:27,120
Speaker 3: Then well, I have one last question, which is just

847
00:44:27,160 --> 00:44:29,759
Speaker 3: tell us about the next several weeks and what are

848
00:44:29,800 --> 00:44:33,680
Speaker 3: you looking out for and how bad could it get?

849
00:44:33,760 --> 00:44:35,520
Speaker 3: And what is the time frame for that? Give us

850
00:44:35,560 --> 00:44:38,319
Speaker 3: your sort of outlook and telling clients they ask how bad?

851
00:44:38,480 --> 00:44:41,640
Speaker 3: What's going on? And let's suppose we none of us

852
00:44:41,880 --> 00:44:44,080
Speaker 3: know when the war's going to end. It could we're

853
00:44:44,120 --> 00:44:46,480
Speaker 3: recording this March twenty four at nine fifty three am.

854
00:44:46,719 --> 00:44:48,640
Speaker 3: It could end by the time this episode comes out.

855
00:44:48,680 --> 00:44:50,919
Speaker 3: But let's just say we don't know the war's going

856
00:44:50,960 --> 00:44:53,040
Speaker 3: on in a month. Supposed how what are.

857
00:44:52,960 --> 00:44:55,759
Speaker 4: We looking at? Still one asterisk there, whether the war

858
00:44:55,840 --> 00:44:58,120
Speaker 4: continues or not, which we talk about and buyingary terms.

859
00:44:58,120 --> 00:44:59,560
Speaker 4: It does not mean that the strait of her moves

860
00:44:59,600 --> 00:45:03,239
Speaker 4: will become accessible again. That's just important to So that's

861
00:45:03,320 --> 00:45:05,520
Speaker 4: when I look over the next weeks or months. Again,

862
00:45:05,560 --> 00:45:08,400
Speaker 4: I usually abstain from giving any political commentary, but to me,

863
00:45:08,480 --> 00:45:10,880
Speaker 4: as an analyst, just looking at baseline assumptions over next

864
00:45:10,920 --> 00:45:13,520
Speaker 4: weeks or months, the assumption that the strait of her

865
00:45:13,600 --> 00:45:15,640
Speaker 4: moves will become passable again, to me is very hard

866
00:45:15,680 --> 00:45:18,560
Speaker 4: to make. So that's my first really major takeaway, at

867
00:45:18,680 --> 00:45:22,239
Speaker 4: least when I look at my own forecast outlooks, which

868
00:45:22,280 --> 00:45:26,560
Speaker 4: partially have become completely obsolete, I need to overhaul, but

869
00:45:26,719 --> 00:45:30,000
Speaker 4: I'm very inclined to make that assumption, still waiting for

870
00:45:30,040 --> 00:45:31,960
Speaker 4: a couple of days weeks to see how things develop.

871
00:45:32,120 --> 00:45:36,320
Speaker 4: But that's my first really major thing that I just

872
00:45:36,560 --> 00:45:39,000
Speaker 4: find the argument that the strait of her moves that

873
00:45:39,160 --> 00:45:41,759
Speaker 4: things returned to normal in terms of shipping incredibly hard

874
00:45:41,800 --> 00:45:43,680
Speaker 4: to make. So point number one. Now, when it comes

875
00:45:43,719 --> 00:45:49,760
Speaker 4: to chemicals, firstly spread between NAFTA and crude oil, especially

876
00:45:49,960 --> 00:45:53,480
Speaker 4: in Asia, I expect to search, especially to search in

877
00:45:53,560 --> 00:45:56,080
Speaker 4: early April. The reason being because Asia still has to

878
00:45:56,160 --> 00:45:59,440
Speaker 4: tap into its inventories naught to inventories. They're not a lot,

879
00:45:59,640 --> 00:46:01,200
Speaker 4: but they can can cover a little bit of ground.

880
00:46:01,600 --> 00:46:04,040
Speaker 4: We again still have to see the impact of the voyages.

881
00:46:04,360 --> 00:46:06,600
Speaker 4: I think we've just bought that time. We're now entering

882
00:46:06,640 --> 00:46:09,719
Speaker 4: the phase where you really see more material shortages. I

883
00:46:09,800 --> 00:46:11,719
Speaker 4: think all of that will peak in early April, and

884
00:46:11,800 --> 00:46:14,439
Speaker 4: then again technically depends on what happens next. That's point

885
00:46:14,520 --> 00:46:16,759
Speaker 4: number one. Point number two, what I'm really looking out

886
00:46:16,880 --> 00:46:20,000
Speaker 4: for is any announcements on projects that we're in the

887
00:46:20,040 --> 00:46:23,200
Speaker 4: pipeline from China and technically the Middle East, but the

888
00:46:23,200 --> 00:46:26,800
Speaker 4: Middle East I have already kind of provisionally done away

889
00:46:26,920 --> 00:46:29,279
Speaker 4: with with well, that's probably not going to work out

890
00:46:29,280 --> 00:46:32,400
Speaker 4: in twenty twenty six, twenty twenty seven, any projects for

891
00:46:32,880 --> 00:46:35,839
Speaker 4: planned for twenty twenty six. What happens there? Point number three,

892
00:46:36,440 --> 00:46:39,000
Speaker 4: what is China's strategy here at large going forward? Because

893
00:46:39,080 --> 00:46:41,080
Speaker 4: China has in a very interesting position. It's not as

894
00:46:41,160 --> 00:46:44,600
Speaker 4: badly affected as Self Creer or Japan, but it still

895
00:46:44,719 --> 00:46:47,640
Speaker 4: changes a lot of things because well for a lot

896
00:46:47,640 --> 00:46:50,480
Speaker 4: of new facilities. For example, so China had about twenty

897
00:46:50,600 --> 00:46:53,200
Speaker 4: million tons of new athlete capacity in a pipeline, almost

898
00:46:53,200 --> 00:46:55,160
Speaker 4: all of which coming from cranking, almost all of which

899
00:46:55,200 --> 00:46:58,040
Speaker 4: coming from after a lot of which hinging on crude

900
00:46:58,080 --> 00:47:00,160
Speaker 4: oil coming from the Middle East. What happens to that?

901
00:47:00,360 --> 00:47:03,160
Speaker 4: That's a big question mark to me, and I'm curious

902
00:47:03,200 --> 00:47:05,280
Speaker 4: to see indeed, whether we're going to see a shift

903
00:47:05,400 --> 00:47:08,439
Speaker 4: more toward new call based facilities. I think that would

904
00:47:08,440 --> 00:47:10,279
Speaker 4: take a couple of months rather than weeks, but that's

905
00:47:10,280 --> 00:47:12,919
Speaker 4: something I'm looking out for. And in the same vein

906
00:47:13,640 --> 00:47:17,840
Speaker 4: two more points, one being Western Hemisphere US where we

907
00:47:17,920 --> 00:47:21,600
Speaker 4: see a research interest in investments, and Western Hemisphere Latin

908
00:47:21,640 --> 00:47:24,160
Speaker 4: America and Bolivia, Peru, Venezuela, which had a lot of

909
00:47:24,239 --> 00:47:26,320
Speaker 4: interest in the chemical industries in the past, but it

910
00:47:26,440 --> 00:47:29,480
Speaker 4: was dropped again. Well, we see a renewed interest there

911
00:47:29,560 --> 00:47:31,719
Speaker 4: and potentially in Argentina with a lot of shell guess.

912
00:47:32,320 --> 00:47:36,000
Speaker 4: And then lastly Europe. Europe is very interesting because up

913
00:47:36,120 --> 00:47:39,040
Speaker 4: until recently I've been going on and on about how

914
00:47:39,120 --> 00:47:43,480
Speaker 4: your chemical industry is in decline and it was now ironically,

915
00:47:43,640 --> 00:47:45,560
Speaker 4: and this is a big topic of debate, but I

916
00:47:45,760 --> 00:47:49,080
Speaker 4: take the stance that all of this is happening very

917
00:47:49,200 --> 00:47:51,239
Speaker 4: much more likely than not is a net benefit for

918
00:47:51,280 --> 00:47:52,880
Speaker 4: a lot of chemical producing Europe. And this is a

919
00:47:52,880 --> 00:47:56,320
Speaker 4: big topic to unpack, maybe for another time, but I

920
00:47:56,360 --> 00:47:58,920
Speaker 4: would definitely be watching indeed whether this turns out this

921
00:47:59,040 --> 00:48:00,000
Speaker 4: way for European producer.

922
00:48:00,840 --> 00:48:03,240
Speaker 2: Philip Gratz, thank you so much for coming on all thoughts.

923
00:48:03,360 --> 00:48:06,319
Speaker 2: Really enjoyed the conversation. That was a lot of fun than.

924
00:48:06,520 --> 00:48:19,960
Speaker 4: Two guys, Joe.

925
00:48:20,120 --> 00:48:22,880
Speaker 2: That was a lot of fun. I always appreciate analysts

926
00:48:22,920 --> 00:48:25,920
Speaker 2: who come with the numbers just memorized right, and just

927
00:48:26,080 --> 00:48:29,680
Speaker 2: rattle off like, well there's a difference between production versus capacity, all.

928
00:48:29,600 --> 00:48:35,880
Speaker 3: Of that, right, Or there's like okay, South Korea, Malaysia, Japan, Indonesia,

929
00:48:36,040 --> 00:48:39,200
Speaker 3: all right, Singapore, That gets you to forty four million. That. Yeah, Now,

930
00:48:39,239 --> 00:48:42,000
Speaker 3: people who can do that, those are the people that

931
00:48:42,160 --> 00:48:45,319
Speaker 3: always know their stuff and details matter.

932
00:48:45,760 --> 00:48:48,400
Speaker 2: But the last question you asked about, you know what

933
00:48:48,520 --> 00:48:51,600
Speaker 2: Philip is looking out for and his answer. I wrote

934
00:48:51,600 --> 00:48:53,880
Speaker 2: about this in the Authoughts News yater yesterday, which is

935
00:48:53,920 --> 00:48:55,879
Speaker 2: why it's on my mind. But like when we're talking

936
00:48:55,880 --> 00:48:57,960
Speaker 2: about the closure of the straight of war moves, we're

937
00:48:58,000 --> 00:49:01,239
Speaker 2: basically talking about like the choke point of all choke

938
00:49:01,320 --> 00:49:05,560
Speaker 2: points in the global economy, right, And obviously oil is

939
00:49:05,600 --> 00:49:07,719
Speaker 2: a big part of that, but as we just learned

940
00:49:07,760 --> 00:49:11,200
Speaker 2: in this episode, so is petrochemicals, so as fertilizer. We've

941
00:49:11,200 --> 00:49:15,279
Speaker 2: done previous episodes on that, and so it strikes me

942
00:49:15,360 --> 00:49:18,200
Speaker 2: as almost inevitable that people are going to come away

943
00:49:18,280 --> 00:49:20,520
Speaker 2: from this experience, no matter how long it goes on

944
00:49:20,680 --> 00:49:24,000
Speaker 2: for with the intention to build out their own capacity

945
00:49:24,520 --> 00:49:28,000
Speaker 2: or secure their own supply. And it was interesting even

946
00:49:28,040 --> 00:49:30,719
Speaker 2: in a place like Europe, which we tend to think

947
00:49:30,760 --> 00:49:34,680
Speaker 2: of sometimes as in structural decline, certainly in terms of

948
00:49:34,719 --> 00:49:38,360
Speaker 2: its chemicals industry, even there, like you could see a

949
00:49:38,480 --> 00:49:41,640
Speaker 2: revival as a result of this, even you know, three

950
00:49:41,719 --> 00:49:42,840
Speaker 2: weeks worth of disruption.

951
00:49:43,160 --> 00:49:45,680
Speaker 3: Yeah, I really think this is the main story. It

952
00:49:45,800 --> 00:49:48,560
Speaker 3: was the main story before the start of the Iran War,

953
00:49:48,640 --> 00:49:51,560
Speaker 3: and now clearly an accelerant to this story, which is

954
00:49:51,840 --> 00:49:57,560
Speaker 3: just every country wanting to have greater capacity domestically and

955
00:49:57,680 --> 00:50:00,600
Speaker 3: to be less reliant on choke point. Look, if we

956
00:50:00,760 --> 00:50:03,880
Speaker 3: knew for a fact that the straight ofform moves was

957
00:50:03,960 --> 00:50:07,000
Speaker 3: a going to reopen just as it was a month

958
00:50:07,040 --> 00:50:10,760
Speaker 3: ago in b never close again, how would you possibly

959
00:50:10,880 --> 00:50:12,960
Speaker 3: know that? He's like, oh, we don't need to do anything,

960
00:50:13,080 --> 00:50:15,120
Speaker 3: but like, we're in a state we know now that

961
00:50:15,320 --> 00:50:17,839
Speaker 3: like it is closable, we know it's closed. Not only

962
00:50:17,920 --> 00:50:20,520
Speaker 3: do we know that it's closable, we know that it's

963
00:50:20,600 --> 00:50:25,399
Speaker 3: closable without a particularly large military effort. That you fire

964
00:50:25,480 --> 00:50:29,160
Speaker 3: a few drones or missiles a day, not even in

965
00:50:29,239 --> 00:50:32,959
Speaker 3: a particularly costly effort, and you can bring so many

966
00:50:33,120 --> 00:50:36,719
Speaker 3: industries and so many countries and so much activity basically

967
00:50:37,239 --> 00:50:41,560
Speaker 3: to a halt, that fact can never be unknown again. Basically,

968
00:50:42,080 --> 00:50:45,360
Speaker 3: that's sort of what Teleb talks about when he that

969
00:50:45,480 --> 00:50:48,120
Speaker 3: is sort of the significant of a black swan. That

970
00:50:48,600 --> 00:50:51,359
Speaker 3: word gets abused a lot because every time an event

971
00:50:51,440 --> 00:50:54,200
Speaker 3: has a black swan. But the key insight where I

972
00:50:54,400 --> 00:50:57,160
Speaker 3: find it actually to be a useful phrase is if

973
00:50:57,200 --> 00:50:59,040
Speaker 3: you think all swans are white, and you see a

974
00:50:59,080 --> 00:51:01,319
Speaker 3: black swan, then you know for the rest of your

975
00:51:01,400 --> 00:51:03,520
Speaker 3: life exists. Then you know that they exist. And so

976
00:51:03,719 --> 00:51:05,839
Speaker 3: it is a black swan in the sense that if

977
00:51:05,880 --> 00:51:08,400
Speaker 3: the straight of horror moves can be closed, which is

978
00:51:08,440 --> 00:51:12,640
Speaker 3: something that people have contemplated before with relatively little effort,

979
00:51:12,960 --> 00:51:14,680
Speaker 3: you're going to know that the rest of your life.

980
00:51:14,680 --> 00:51:16,400
Speaker 3: And that's going to change planning for the rest of

981
00:51:16,440 --> 00:51:19,040
Speaker 3: your life, and it'll be really interesting to see. It's

982
00:51:19,080 --> 00:51:22,640
Speaker 3: also just interesting, I think his point about how because

983
00:51:22,680 --> 00:51:27,920
Speaker 3: of Chinese supply, so many of these Korean, Japanese, et cetera.

984
00:51:28,320 --> 00:51:32,000
Speaker 3: Crackers were already in trouble. Yeah, and now what's going

985
00:51:32,120 --> 00:51:34,600
Speaker 3: to happen there? I mean that is also a really

986
00:51:34,640 --> 00:51:38,800
Speaker 3: big structural shortage, this sort of the milkshake of economic

987
00:51:38,880 --> 00:51:43,200
Speaker 3: activity pouring into China relative to everywhere else, So lots

988
00:51:43,239 --> 00:51:44,480
Speaker 3: of things going on at once. Well.

989
00:51:44,560 --> 00:51:49,920
Speaker 2: Also the non substitutability of polyethylene, especially package like the

990
00:51:50,040 --> 00:51:52,320
Speaker 2: idea that we're not all suddenly going to switch to

991
00:51:52,840 --> 00:51:56,080
Speaker 2: burlap bags and bring our own like wooden crates to

992
00:51:56,560 --> 00:51:59,640
Speaker 2: pick up like beams from the Yeah, I could see

993
00:51:59,680 --> 00:52:02,040
Speaker 2: that being an esthetic choice, but that's not to keep

994
00:52:02,640 --> 00:52:04,759
Speaker 2: so not scalable. All right, shall we leave it there?

995
00:52:04,840 --> 00:52:05,480
Speaker 3: Let's leave it there.

996
00:52:05,719 --> 00:52:08,000
Speaker 2: This has been another episode of the Odd Lots podcast.

997
00:52:08,120 --> 00:52:11,280
Speaker 2: I'm Tracy Alloway. You can follow me at Tracy Alloway.

998
00:52:11,080 --> 00:52:13,960
Speaker 3: And I'm joll Wisenthal. You can follow me at the Stalwart.

999
00:52:14,280 --> 00:52:17,360
Speaker 3: Follow our producers Carmen Rodriguez at Carman armand desh O

1000
00:52:17,440 --> 00:52:20,400
Speaker 3: Bennett at Dashbot and kill Brooks at Kale Brooks. And

1001
00:52:20,480 --> 00:52:22,839
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1002
00:52:22,960 --> 00:52:25,320
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1003
00:52:25,360 --> 00:52:27,399
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1004
00:52:27,440 --> 00:52:30,680
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1005
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1006
00:52:32,160 --> 00:52:34,160
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1007
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1008
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1009
00:52:40,360 --> 00:52:43,000
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1010
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1013
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