WEBVTT - The Petrochemicals Shock That's Already Rippling Through Plastics 0:00:02.720 --> 0:00:14.000 Bloomberg Audio Studios, Podcasts, radio News. 0:00:18.600 --> 0:00:21.440 Hello and welcome to another episode of the ad Thoughts podcast. 0:00:21.520 --> 0:00:23.880 I'm Tracy Alloway and I'm Joe Wisenthal. 0:00:24.200 --> 0:00:28.319 Joe, I have a prop for today, prop episode, a 0:00:28.400 --> 0:00:31.760 visual learning aid for a podcast. I'm going to hold 0:00:31.760 --> 0:00:32.080 this up. 0:00:32.320 --> 0:00:35.600 Yeah, what is this? It looks like a magenta marker. 0:00:35.960 --> 0:00:36.560 Magenta. 0:00:36.800 --> 0:00:37.680 Yeah, it's pink. 0:00:37.840 --> 0:00:43.280 It's hot pink's it's like purplish pink. Really, Okay, color 0:00:43.360 --> 0:00:46.000 is beside the point. It is indeed a highlighter. But 0:00:46.040 --> 0:00:50.560 more importantly, it is a result of a complex petrochemicals 0:00:50.640 --> 0:00:51.400 supply chain. 0:00:51.880 --> 0:00:54.560 You're right, it Isgenda is more purplish. I don't know. 0:00:54.640 --> 0:00:56.760 I always thought it's a little bit more pinkish. But yes, 0:00:56.840 --> 0:00:58.600 you're correct, you're you're correct, You're totally correct. 0:00:58.640 --> 0:01:01.080 I didn't intend your major takeaway from this conversation to 0:01:01.240 --> 0:01:02.760 the different maga. 0:01:02.840 --> 0:01:06.600 Okay, but yes, you're right. And without advanced chemicals of 0:01:06.640 --> 0:01:10.119 all sorts and oil and all that, you would never 0:01:10.200 --> 0:01:13.080 have the plastic shell of the marker, and maybe even 0:01:13.280 --> 0:01:15.600 some aspects of what gives it color when you draw 0:01:15.640 --> 0:01:16.040 on something. 0:01:16.080 --> 0:01:19.560 All right, So what is this plastic casing actually made 0:01:19.600 --> 0:01:20.039 of this is a. 0:01:20.040 --> 0:01:22.479 Pop quiz that I definitely have no idea. Okay. 0:01:22.560 --> 0:01:23.720 It starts from. 0:01:23.800 --> 0:01:25.920 Yeah, crude oil, yeah that okay. 0:01:25.840 --> 0:01:28.520 Yeah, so crude oil distilled into. 0:01:30.240 --> 0:01:33.640 Keep going naphtha, naphtha, right, naphtha. 0:01:33.360 --> 0:01:36.200 And then naphtha is this is a hint cracked into 0:01:38.560 --> 0:01:44.160 ethylene or propylene. Yeah, we've actually done yeah, okay, and 0:01:44.200 --> 0:01:52.080 then it gets polymerized, yeah, into polyethylene, right, and then 0:01:52.080 --> 0:01:54.680 it gets chopped up into tiny little plastic pellets, which 0:01:54.680 --> 0:01:57.400 are I know, you know this one. What are they 0:01:57.440 --> 0:02:00.720 called the little plastic pellet? One of my favorite words. 0:02:01.760 --> 0:02:05.400 Go on, nerdles, nerdles. I remember all of this from 0:02:05.400 --> 0:02:07.120 that episode that we did nerdle the. 0:02:07.080 --> 0:02:10.760 Building blocks of highlighters and lots of other plastic products, 0:02:10.800 --> 0:02:13.520 which isles. Okay. So the reason we bring this up 0:02:13.639 --> 0:02:17.720 is obviously there's a situation in Iran. The Straight of 0:02:17.800 --> 0:02:20.280 Horror Moves is still closed. We're recording this on March 0:02:20.480 --> 0:02:24.000 twenty fourth, and we're starting to see a lot of 0:02:24.080 --> 0:02:27.760 the disruptions in the oil market start to I guess, 0:02:27.919 --> 0:02:30.440 ripple out into other petrochemicals. 0:02:30.520 --> 0:02:30.680 Right. 0:02:30.800 --> 0:02:33.120 And someone asked this on a twinter the other day, 0:02:33.120 --> 0:02:35.560 and they were like Joe, or is the higher price 0:02:35.600 --> 0:02:38.760 of oil gonna impact the price of plastics? And I 0:02:38.800 --> 0:02:40.920 was like, I would be very surprised if it didn't. 0:02:40.960 --> 0:02:42.639 I mean, I don't really know for sure, but it 0:02:42.680 --> 0:02:44.960 would be very weird. It would be hard for me 0:02:45.000 --> 0:02:48.280 to imagine a scenario in which the key input doesn't. 0:02:48.760 --> 0:02:51.200 The thing that I am very curious about, and you 0:02:51.320 --> 0:02:55.720 described a sort of sequential chain of industrial processes from 0:02:55.760 --> 0:02:58.880 the oil to the nerdles, and of course when we 0:02:58.960 --> 0:03:02.000 did the episode, so one of the things that we've 0:03:02.040 --> 0:03:05.040 talked about is that there is a gap between the 0:03:05.080 --> 0:03:08.639 price of some of these end products and the implied 0:03:08.800 --> 0:03:12.080 price of crude oil. So crude oil, I don't know 0:03:12.120 --> 0:03:14.000 exactly where it is right now at this moment that 0:03:14.000 --> 0:03:16.600 we're recording it, but it's shot up, but these end 0:03:16.680 --> 0:03:19.240 products have shot up even more. And our guest Rory 0:03:19.320 --> 0:03:22.000 Johnson had a really good explanation, which is that the 0:03:22.160 --> 0:03:25.359 refineries do not want to shut down, and so they're rationing. 0:03:25.400 --> 0:03:29.119 They're slowing their input, their input because it is very 0:03:29.160 --> 0:03:32.080 costly to shut down and ever restart should they ever 0:03:32.160 --> 0:03:34.320 run out, which is a prospect given that we're seeing 0:03:34.320 --> 0:03:37.000 a volumetric decline and the amount of oil available in 0:03:37.040 --> 0:03:39.640 the world. What I'm curious about, in which I don't 0:03:39.720 --> 0:03:42.560 know the answer, is whether this applies to all of 0:03:42.600 --> 0:03:47.400 the different processing steps along the way, which is is 0:03:47.440 --> 0:03:50.640 there this sort of even greater price impact because the 0:03:50.800 --> 0:03:54.800 entities that do all these sequential industrial processes are slowing 0:03:54.880 --> 0:03:58.720 down because the shutdown and restart process is costly for 0:03:58.760 --> 0:03:59.520 them as well. Well. 0:03:59.520 --> 0:04:01.600 I would say the added complication with a lot of 0:04:01.600 --> 0:04:05.400 petrochemicals is we are in fact seeing some closures already. 0:04:05.520 --> 0:04:08.839 So in Asia, we've had a few crackers, as they're 0:04:08.880 --> 0:04:12.560 called Asian crackers, start to shut down their production and 0:04:12.600 --> 0:04:15.560 basically declare force measure, and so we are seeing fewer 0:04:15.600 --> 0:04:19.880 petrochemicals get made in places like Japan and South Korea. 0:04:20.000 --> 0:04:24.000 I think the question we're kind of inching towards is 0:04:24.080 --> 0:04:25.839 whether or not this is just going to be a 0:04:25.920 --> 0:04:28.880 question of price, you know, prices for plastics go up, 0:04:29.040 --> 0:04:32.920 or an actual supply shortage in the sense that maybe 0:04:32.960 --> 0:04:36.760 you just can't get certain types of plastics or packaging. 0:04:36.800 --> 0:04:38.560 And one other thing I would just add, I think 0:04:38.560 --> 0:04:43.200 in the post COVID environment, an underappreciated driver of inflation 0:04:43.320 --> 0:04:45.840 at that time was the cost of packaging. That's right, 0:04:45.880 --> 0:04:47.880 because we did see the cost of plastics go up. 0:04:47.880 --> 0:04:49.640 And if you think about what you're buying at a 0:04:49.640 --> 0:04:52.520 grocery store, like, Okay, it's a bunch of carrots, but 0:04:52.520 --> 0:04:54.440 it's also a bunch of carrots in a plastic and. 0:04:54.480 --> 0:04:57.960 A plastic bag completely or jar or whatever. And I 0:04:58.000 --> 0:04:59.960 would say in a lot of the cases of food 0:05:00.080 --> 0:05:04.480 stuffs in particular, you're mostly paying for the entire supply 0:05:04.640 --> 0:05:08.360 chain and the packaging of it. The actual food value 0:05:08.400 --> 0:05:11.560 is almost dirt cheap if nothing. And so yeah, and 0:05:11.760 --> 0:05:14.080 are we just going to get outright shortages? What other 0:05:14.160 --> 0:05:16.719 ripple effects? I don't think we have any idea. Probably 0:05:16.720 --> 0:05:19.000 one of these things that compounds the longer this war 0:05:19.120 --> 0:05:20.000 enclosure goes on. 0:05:20.360 --> 0:05:22.600 Many questions that we have, all right, well, I am 0:05:22.600 --> 0:05:24.839 happy to say we do, in fact have the perfect 0:05:24.839 --> 0:05:27.560 guests to talk all things petrochemicals. We're going to be 0:05:27.560 --> 0:05:31.040 speaking with Philip Gertz. He is the chemicals and oil 0:05:31.080 --> 0:05:35.000 analyst over at BNEF and a guy who lives and 0:05:35.120 --> 0:05:37.760 breathes polymers, hopefully not literally. 0:05:37.560 --> 0:05:39.960 Not breathed, hopefully not breathes polymers. 0:05:40.000 --> 0:05:41.720 All right, Philip, thank you so much for coming on 0:05:41.720 --> 0:05:42.280 a lauds. 0:05:42.680 --> 0:05:44.720 Thank you very much, Tracy and Joe and sounds are 0:05:44.760 --> 0:05:47.880 we set introduce me with living and breathing polymers. But 0:05:47.960 --> 0:05:49.960 I'll take it. I'll take it for sure. 0:05:50.120 --> 0:05:52.800 We're all filled with microplastics now, right, So you're not 0:05:53.200 --> 0:05:56.600 exactly right. So I'm tempted to begin just by asking 0:05:56.600 --> 0:05:59.400 you to kind of list all the petrochemicals affected by 0:05:59.400 --> 0:06:02.000 the strait of hornes moose, sort of like Forest Gump 0:06:02.200 --> 0:06:06.360 style ethylene, propylene, polyethylene. You go on and on and on, 0:06:06.839 --> 0:06:09.720 but just broadly, why don't you tell us about the 0:06:09.720 --> 0:06:14.200 Gulf region and its role in the petrochemicals supply chain. 0:06:14.320 --> 0:06:18.719 Who right, Yeah, lot's to unpack here. So when it 0:06:18.760 --> 0:06:23.520 comes to chemicals at large, let's maybe establish three different categories. 0:06:23.560 --> 0:06:26.200 We have the feed stock, like you already pointed out, Tracy, 0:06:26.240 --> 0:06:28.520 basically you almost don't need me here. But you have 0:06:28.720 --> 0:06:33.040 the crude oil that's turned into NAFTA and liquefied petroleum gas, 0:06:33.120 --> 0:06:36.800 which are butane and propane principally ethane. Those all the 0:06:36.800 --> 0:06:39.839 feedstocks that go into the so called crackers, and the 0:06:39.880 --> 0:06:43.120 crackers turn them in what we call base chemicals. There 0:06:43.120 --> 0:06:46.240 are technically six major based chemicals that come out of this, 0:06:46.400 --> 0:06:48.960 but for the sake of today's discussion, the major focus 0:06:49.000 --> 0:06:52.000 will probably be really around ethylene propylene. If we want 0:06:52.040 --> 0:06:55.960 to get readyfins, we can talk about xylene's parasolline or butydyninge. 0:06:56.040 --> 0:06:59.039 But a lot of the really the majority of the 0:06:59.120 --> 0:07:02.200 bulk plastic that we talk about really come from ethylene 0:07:02.279 --> 0:07:06.280 and propylene, and some from parasylene. In terms of polyethylene, 0:07:06.320 --> 0:07:11.720 terreftolot or are also more commonly known as polyester. So ethylene, propylene, 0:07:11.960 --> 0:07:19.000 xyolene are turned into polyethylene, polypropylene and into polyethylene terreftolot 0:07:19.280 --> 0:07:24.239 or polyester. Now you have a wide range of really 0:07:24.280 --> 0:07:27.840 different derivative chains. Even within polyethylene, you have a lot 0:07:27.840 --> 0:07:31.520 of subcategories, and within those subcategories of other subcategories. In 0:07:31.640 --> 0:07:34.200 very simple terms, you have a three way division into 0:07:34.280 --> 0:07:39.400 high density polyethylene, low density polyethylene, and linear low density polyethylene. 0:07:39.760 --> 0:07:41.920 Doesn't matter too much, but it's good to be aware 0:07:42.080 --> 0:07:44.840 of that. When we talk about, well in analyst terms, 0:07:44.840 --> 0:07:47.360 about where the market is moving, we typically look at 0:07:47.480 --> 0:07:51.400 high density polyethylene. What's the supply demand there? Same goes 0:07:51.440 --> 0:07:55.119 for low density. Obviously they have different applications. And also 0:07:55.400 --> 0:07:58.760 within those larger buckets there are a lot of subcategories. 0:07:59.280 --> 0:08:02.440 Now you circle back to the major theme here of 0:08:02.520 --> 0:08:06.320 what's the position of the Middle East Gulf. So within 0:08:06.400 --> 0:08:10.880 those three categories, firstly, the Middle East itself is a 0:08:10.920 --> 0:08:14.680 major ex border of polyethylene, polypropylene, et cetera, et cetera, 0:08:15.080 --> 0:08:18.440 especially of polyethylene. And when I say major, let's be 0:08:18.520 --> 0:08:23.040 specific in need polyethylene polyethylene varieties. That's about twelve percent 0:08:23.160 --> 0:08:26.400 of global capacity. Production will be slightly higher thirteen fourteen percent, 0:08:27.160 --> 0:08:30.120 quite a significant chunk. To make that even more explicit, 0:08:30.800 --> 0:08:34.600 if you take those volumes, we're talking about eighteen million 0:08:34.720 --> 0:08:39.240 tons one eighth of production capacity, and Middle Eastern crack 0:08:39.360 --> 0:08:42.360 or Middle Eastern facilities typically run at very high rates 0:08:42.440 --> 0:08:45.480 ninety two hundred percent, so roughly an equivalent amount of production. 0:08:46.000 --> 0:08:48.760 If you take all of that, that's basically as much 0:08:48.840 --> 0:08:52.280 as Europe slash slightly more consumes. So it's a lot right. 0:08:52.760 --> 0:08:56.280 You have those volumes firstly being taken off the market directly, 0:08:56.559 --> 0:08:59.920 although a couple of asterisks here because technically polymers are 0:09:00.080 --> 0:09:03.520 export it differently than fuel. They're exported in a solid state, 0:09:03.760 --> 0:09:07.800 which means theoretically there should be the possibility of diversion. 0:09:07.880 --> 0:09:12.160 That's slightly easier than for oil NAFTA or oil products 0:09:12.200 --> 0:09:14.600 in general. It's big asterisk there. But if you take 0:09:14.640 --> 0:09:16.880 all of that off the market, you basically have the 0:09:17.080 --> 0:09:20.320 entirety of what Europe consumes all of the sudden disappearing. 0:09:20.600 --> 0:09:24.120 So that's step number one. Emphasis here on this goes 0:09:24.600 --> 0:09:28.920 especially again for poly ethylene varieties. Polypropylene is slightly lower. 0:09:29.120 --> 0:09:33.679 We're talking about seven ish percent of global production PVC 0:09:33.880 --> 0:09:37.120 polyvinyl chloride, which is used heavily in infrastructure, even lower. 0:09:37.200 --> 0:09:40.040 That's three to four percent styrene, which is another major 0:09:40.120 --> 0:09:42.560 value chain we're talking about against six to seven percent, 0:09:42.679 --> 0:09:45.640 so the Middle East in terms of polymers, that's really 0:09:45.720 --> 0:09:49.640 really a poly ethylene story, but not exclusively. So that's 0:09:49.800 --> 0:09:52.319 step number one, the direct polymer exports. Step number two 0:09:52.520 --> 0:09:55.319 is and that I would argue is really where you 0:09:55.400 --> 0:09:58.640 see the biggest impact is on the feed stock side. Again, 0:09:58.840 --> 0:10:01.319 this is something you can subdi into three categories. You 0:10:01.400 --> 0:10:04.520 have direct NAFTA exports. You have crude oil exports that 0:10:04.600 --> 0:10:07.160 are then turned into NAFTA amongst others, so the refineries 0:10:07.240 --> 0:10:09.160 run on it, and obviously if you have to cut 0:10:09.240 --> 0:10:11.959 refinery rates, you're also going to lose NAFTA output. And 0:10:12.120 --> 0:10:15.200 you have what's again called LPG liquified per toilum gas, 0:10:15.559 --> 0:10:18.520 which I'll just allude to well as LPG from now on, 0:10:18.679 --> 0:10:21.640 but that means probaane buttane. So we have those three 0:10:22.200 --> 0:10:25.839 they almost exclusively go to Asia. And when I say Asia, 0:10:25.880 --> 0:10:28.559 we can go into the nitty gritty details of how 0:10:28.840 --> 0:10:32.360 dependent each individual producer is exactly in those feedstock extremes, 0:10:32.400 --> 0:10:35.880 because there are quite huge differences there. But in very 0:10:35.960 --> 0:10:40.000 broad terms, polymer exports, that's twelve percent. If we take 0:10:40.040 --> 0:10:43.000 the NAFTA enough to exports and the crude oil exports, 0:10:43.720 --> 0:10:47.319 and we translate that into how much does ethylene and 0:10:47.440 --> 0:10:50.360 consequently polyethylene production would have to be cut in Asia? 0:10:50.760 --> 0:10:53.960 That's probably around fifteen to seventeen percent of global production. 0:10:54.120 --> 0:10:56.760 So that's really where the predominant hit comes from. 0:10:57.000 --> 0:11:00.560 Now it's fantastic. First of all, quick question on NAFTA, 0:11:01.040 --> 0:11:04.760 is that typically produced where the oil comes from? How 0:11:05.000 --> 0:11:07.760 like tight is that it is derived from crude oil? 0:11:08.160 --> 0:11:10.360 Is it typically right there? Or they're parts of the 0:11:10.440 --> 0:11:13.080 value chain where the oil gets shipped a long way 0:11:13.200 --> 0:11:14.839 and then the nafta is produced somewhere else. 0:11:15.160 --> 0:11:18.400 It's basically the latter, or rather it just depends right, Okay, 0:11:18.520 --> 0:11:20.679 the same as as for refineries at large, it just 0:11:20.760 --> 0:11:22.760 depends on where your refineries are located. So if you 0:11:22.760 --> 0:11:24.480 look at the Middle East for example, or let's take 0:11:24.520 --> 0:11:27.839 Saudi Saudi produces around ten to eleven million barrels of 0:11:27.920 --> 0:11:30.120 crude oil per day. But if I'm not mistaken, it's 0:11:30.160 --> 0:11:33.120 refining capacity is around anywhere betweenty three and four million 0:11:33.240 --> 0:11:35.719 barrels per day. So in that case, it refines a 0:11:35.760 --> 0:11:38.680 relatively small amount of its total production capacity. 0:11:39.240 --> 0:11:42.480 So to Joe's point, why do places like Japan and 0:11:42.600 --> 0:11:45.199 South Korea, why do they have, you know, crackers who 0:11:45.240 --> 0:11:49.319 are refining naptha into other polymers at all? Why does 0:11:49.360 --> 0:11:51.680 that make sense for them or is strategically important? 0:11:51.880 --> 0:11:56.040 Well, history plays a huge role. Japan, next to Europe 0:11:56.160 --> 0:11:58.720 and the US, was really one of the front runners 0:11:58.760 --> 0:12:01.920 of the petrochemical industry. And that's also why at the 0:12:02.000 --> 0:12:04.679 same time, even before all of this happened, Japan was 0:12:04.679 --> 0:12:06.800 also on the front line of losing its chemical industry. 0:12:07.040 --> 0:12:10.360 That's another topic we can get into later. But basically 0:12:10.400 --> 0:12:13.480 your question would also be, then why aren't those products 0:12:13.559 --> 0:12:15.960 exclusively produced in the Middle East and den ship the story? 0:12:15.960 --> 0:12:19.880 Why not just import them? Why even bother refining them domestically? 0:12:20.160 --> 0:12:21.880 Well, I mean it's not only a question of enough 0:12:21.960 --> 0:12:25.360 to per se, right, but Japan also needs jet fuel, diesel, gasoline, etcetera. 0:12:25.440 --> 0:12:28.280 So all of those come into one supply chain and 0:12:28.960 --> 0:12:32.320 another asterisk here is the Middle East. Again, the Middle 0:12:32.320 --> 0:12:34.719 East is also a major producer of chemicals. If you 0:12:34.760 --> 0:12:38.319 look at ethylene, for example, the largest by far, Surprisingly 0:12:38.360 --> 0:12:39.840 I don't need to turn this into a pop quiz, 0:12:39.960 --> 0:12:44.199 that's China. That's sixty one million tons of ethylene twenty 0:12:44.280 --> 0:12:47.600 five percent of global capacity then comes to US forty 0:12:47.640 --> 0:12:49.360 four million tons a data by the way, as of 0:12:49.440 --> 0:12:53.199 January twenty twenty six. Provisionally, then you have Saudi Arabia 0:12:53.440 --> 0:12:55.439 seventeen million tons, right, so you already have a huge 0:12:55.480 --> 0:12:57.640 step down here, But Saudi Arabia is the third largest 0:12:57.760 --> 0:13:01.240 producer or in terms of chemical ethylene capacity at least 0:13:01.320 --> 0:13:03.240 then you have Self Korea have thirteen million tons. So 0:13:03.280 --> 0:13:05.520 what I'm getting at here is to midd least already 0:13:05.760 --> 0:13:08.480 Saudi as an example, producers a lot has a lot 0:13:08.559 --> 0:13:12.160 of capacity. But because there are such extraordinary oil producers 0:13:12.240 --> 0:13:14.960 next to chemical producers, and the chemicals they produce locally, 0:13:15.040 --> 0:13:17.800 by the way, are largely gas derived. We can get 0:13:17.880 --> 0:13:21.320 also get into that later. But they do both right 0:13:21.400 --> 0:13:23.720 to export a lot of polymers, a lot of chemicals, 0:13:24.160 --> 0:13:27.400 but they also export a lot of products. It's probably 0:13:27.440 --> 0:13:30.320 a bigger question in terms of the overall oil supply 0:13:30.480 --> 0:13:33.880 chain why companies have chosen to also build out the 0:13:33.960 --> 0:13:36.480 refineries in Japan soft Korea a wether than all in 0:13:36.679 --> 0:13:37.600 the Middle East itself. 0:13:53.760 --> 0:13:58.880 So Tracy obviously started the conversation showing her hot pink highlight. 0:14:00.000 --> 0:14:00.760 How you learned something. 0:14:00.800 --> 0:14:03.400 But like you know, if we have to go for 0:14:03.480 --> 0:14:06.360 a while without making highlighters, or maybe we reduce the 0:14:06.440 --> 0:14:09.040 colors of the highlighters, not the end of the world. 0:14:09.160 --> 0:14:11.000 The world isn't going to come to a screeching end, 0:14:11.120 --> 0:14:14.040 et cetera. But I imagine sometimes are a little bit 0:14:14.120 --> 0:14:16.280 higher on the value chain. And so when we talk 0:14:16.280 --> 0:14:18.360 about now, though we talk about some of these other things, 0:14:18.640 --> 0:14:22.080 what end uses would you be most worried about now? 0:14:22.200 --> 0:14:26.040 Because the volume or the capacity numbers that you mentioned 0:14:26.080 --> 0:14:28.920 are pretty substantial. So again, I'm not too worried if 0:14:28.920 --> 0:14:31.400 we go for a few months without making highlighters. What 0:14:31.560 --> 0:14:33.880 are the end use cases that you're watching right now? 0:14:33.920 --> 0:14:35.800 They're like, oh, this could be a real problem. 0:14:36.040 --> 0:14:39.720 Oh you guys had podcasts on fertilizers on this stay. Yeah, 0:14:39.720 --> 0:14:42.280 that's right, it's a very similar story. My main concern, 0:14:42.400 --> 0:14:45.080 without a doubt, would be food packaging. I am not 0:14:45.240 --> 0:14:49.400 aware of any fungible products for polyethylene to be used 0:14:49.440 --> 0:14:52.200 at the same scale for food packaging as well polyethylene, 0:14:52.360 --> 0:14:54.720 so I do not know whether it is a viable alternative. 0:14:54.760 --> 0:14:57.480 Maybe there is, and I'm just ignorant about it, But 0:14:58.040 --> 0:15:01.400 to me, without a doubt, food package and packaging at large. 0:15:01.840 --> 0:15:04.120 It's very cliche to take your own topic and talk 0:15:04.160 --> 0:15:07.200 about how incredibly important it is to modern day society. 0:15:07.640 --> 0:15:10.800 But I mean, this is the complexity of modern day society. 0:15:11.040 --> 0:15:14.160 This is actually a very important point. Is a joke, 0:15:14.440 --> 0:15:16.760 and it's like everyone jokes is like, oh, what I 0:15:17.040 --> 0:15:20.200 do is the chase is the key thing holding modern 0:15:20.360 --> 0:15:24.240 day society together. They're not wrong. They're okay, podcasting, maybe not, 0:15:24.360 --> 0:15:26.280 but like they're not wrong, Like any one of these 0:15:26.360 --> 0:15:28.200 things go and the whole thing goes that was the 0:15:28.320 --> 0:15:30.920 less absolute COVID. So you're not absolutely so take the 0:15:31.120 --> 0:15:33.000 take the credit. You're at the center of the world 0:15:33.120 --> 0:15:35.920 right now. So yeah, all right, talk about food packaging 0:15:35.960 --> 0:15:36.720 and what you're worried about. 0:15:36.800 --> 0:15:40.320 Yeah, food packaging, packaging at large. I'm less worried about, 0:15:40.360 --> 0:15:43.120 let's say, infrastructure projects, right because if you take let's 0:15:43.120 --> 0:15:45.800 say high density poly ethylene and polyvinyl chloride, a lot 0:15:45.840 --> 0:15:48.320 of them go into infrastructure projects. Hence why you could 0:15:48.320 --> 0:15:50.720 see in India, for example, since twenty eighteen twenty nineteen, 0:15:50.840 --> 0:15:54.800 huge search in those chemicals demand, especially high density poly ethylene, 0:15:55.120 --> 0:15:59.120 because they were incredibly large infrastructure projects, especially on water pipelines, 0:15:59.120 --> 0:16:02.120 if I'm not mistaken, goes into that still incredibly important. 0:16:02.160 --> 0:16:04.480 But if we talk about meeting really the urgent tasks 0:16:04.520 --> 0:16:06.800 of the day, which is making sure that everybody has 0:16:06.840 --> 0:16:10.600 access to their basic needs, I find it very hard 0:16:10.720 --> 0:16:13.480 to see how value chains can be constructed or how 0:16:13.800 --> 0:16:17.520 a shortage of polyethylene or other plastics can be circumvented, 0:16:17.640 --> 0:16:20.000 especially poly ethylene near I'm concerned about because of the 0:16:20.360 --> 0:16:25.880 disproportioned impact. And we briefly touched upon Hey, if twelve 0:16:25.960 --> 0:16:28.840 percent of polymers are cut off, polymer exports from the 0:16:28.880 --> 0:16:31.520 Middle East and the feed stocks are cut off. But 0:16:32.240 --> 0:16:34.200 that's only a part of the story. There are many 0:16:34.200 --> 0:16:37.760 angles here to take overall impact obviously, without a doubt, 0:16:37.840 --> 0:16:42.440 will be sizeable. How sizable time will tell. But I 0:16:42.760 --> 0:16:46.320 cannot think of alternatives to the problem we would be facing, 0:16:46.360 --> 0:16:49.360 which is packaging, getting stuff from A to B, making 0:16:49.400 --> 0:16:51.760 sure that stuff is conserved. So if anybody knows in 0:16:51.840 --> 0:16:54.320 the audience, please let us know in the commons. Yeah 0:16:54.400 --> 0:16:54.720 to learn. 0:16:55.240 --> 0:16:58.960 So okay, on that note, what are we seeing now 0:16:59.160 --> 0:17:02.520 in terms of poly ethylene availability? So I mentioned that 0:17:02.600 --> 0:17:05.360 we have seen some crackers in Asia who have had 0:17:05.440 --> 0:17:10.720 to reduce their refining output. Are we seeing prices start 0:17:10.800 --> 0:17:13.760 to rise? Are we seeing outright shortages? What are you 0:17:13.880 --> 0:17:15.359 observing in the market so far? 0:17:16.160 --> 0:17:18.600 So I would kick this off by saying that everything 0:17:18.680 --> 0:17:23.200 happens with a significant delay, and especially now, voyages from 0:17:23.240 --> 0:17:26.000 the Middle East Gulf to South Korea Japan take about 0:17:26.080 --> 0:17:29.159 eighteen to twenty five days, and while we're kind of 0:17:29.280 --> 0:17:31.600 now entering that period. So if you look at crude 0:17:31.640 --> 0:17:33.879 oil imports that went to South Korea, for example, you 0:17:33.880 --> 0:17:36.840 could see them still spiking in the second week of March, 0:17:37.400 --> 0:17:40.160 just because a lot of ships departed in late February, 0:17:40.840 --> 0:17:43.320 whether or not in anticipation of this happening, but there 0:17:43.400 --> 0:17:46.320 is a spike in the second week of March, so 0:17:46.640 --> 0:17:49.399 on a physical side, to me, it seems we have 0:17:49.560 --> 0:17:53.320 seen comparatively little impact yet I think most of this 0:17:53.400 --> 0:17:56.399 will really materialize around early April, and from there on 0:17:56.440 --> 0:18:00.639 it gets worse pretty quickly. Also one importance note here, 0:18:00.800 --> 0:18:03.440 and people can again pitch in in the comments, but 0:18:03.760 --> 0:18:06.560 polyethylene markets are relatively opaque when it comes to the 0:18:06.680 --> 0:18:09.640 exact availability. So we talk a lot about run rates 0:18:09.680 --> 0:18:13.520 even demand. Right, One very cliche topic that's regurgitated a 0:18:13.640 --> 0:18:15.720 lot is demand in Europe is lookwarm. But if you 0:18:15.760 --> 0:18:19.520 look at apparent demand, which is trade plus some production 0:18:19.720 --> 0:18:22.480 run rate assumptions that are reasonable and based on company statements, 0:18:22.560 --> 0:18:25.680 you see that demand is pretty stable. So my point 0:18:25.720 --> 0:18:27.960 here is that demand, how much is consumed in the 0:18:28.000 --> 0:18:30.640 first place, is a relatively obscure topic in the world 0:18:30.680 --> 0:18:33.359 of polyethylene and plastics, because if you look at what 0:18:33.680 --> 0:18:37.760 polyethylene consumption means, you have a lot hundreds thousands per 0:18:37.840 --> 0:18:41.600 market of small plastic converters. They take those pellets and 0:18:41.680 --> 0:18:44.680 they turn them into usable plastics. And to me, it 0:18:44.720 --> 0:18:49.040 seems that data collection there may not be as well 0:18:49.119 --> 0:18:51.800 developed as for let's say, oil refiners. Or maybe I'm 0:18:51.840 --> 0:18:54.280 just ignorant about it, but that's been my observation so 0:18:54.400 --> 0:18:56.399 far in the industry that demand numbers are hard to 0:18:56.440 --> 0:18:58.240 get by. So, circling this back to where we're at 0:18:58.400 --> 0:19:02.399 right now, three four weeks into this scenario, i'd be 0:19:02.640 --> 0:19:05.760 careful with any concrete data points you're seeing, or any 0:19:05.840 --> 0:19:09.000 general statements about demand being down, about supply being cut 0:19:09.119 --> 0:19:11.840 force measures. For sure, we've seen an incredible high amount 0:19:11.840 --> 0:19:14.960 of statements of production being cut. We can also get 0:19:14.960 --> 0:19:17.959 into the details of which markets how much. But if 0:19:18.000 --> 0:19:21.520 you look at across Asia, you've had about thirty to 0:19:21.640 --> 0:19:24.080 forty crackers probably that have made statements in one way, 0:19:24.119 --> 0:19:26.560 shape or form quite often though that just pertains to 0:19:27.080 --> 0:19:30.119 production curtailments and not per se a full shutdown or 0:19:30.200 --> 0:19:33.280 force measures, meaning that they cannot guarantee that they can 0:19:33.359 --> 0:19:38.080 supply their contractors with whatever the contract stipulates. Very long story, 0:19:38.280 --> 0:19:41.760 slightly less long. So far, my take is the impact 0:19:41.840 --> 0:19:44.760 has been relatively limited on the material front, we have 0:19:44.880 --> 0:19:47.240 seen price increases by the way, especially on the NAFTA 0:19:47.520 --> 0:19:52.080 front in Asia, but I would be very surprised if 0:19:52.160 --> 0:19:55.800 this does not deteriorate very significantly over the next two 0:19:55.840 --> 0:19:56.359 to three weeks. 0:19:56.640 --> 0:19:59.640 By the way, I genuinely wasn't sure about this. There 0:19:59.720 --> 0:20:04.480 is polyethylene futures the trade on the dally On Commodity Exchange. 0:20:04.600 --> 0:20:07.440 We have quotes on this. You could see they're traded 0:20:07.680 --> 0:20:13.119 in lots of five metric tons so in USD and 0:20:13.280 --> 0:20:16.119 in the beginning of the year it looks like they 0:20:16.240 --> 0:20:19.760 were trading at around nine hundred and twenty five dollars 0:20:19.840 --> 0:20:24.720 for five metric tons of polyethylene. Now around thirteen hundred dollars, 0:20:24.880 --> 0:20:28.920 so the price has already surged massively. I'm curious though, 0:20:29.119 --> 0:20:33.480 like when we think about the market for some of 0:20:33.600 --> 0:20:36.960 these chemicals that you track, how much is it sort 0:20:37.000 --> 0:20:42.440 of open liquid markets versus long term contracts, et cetera, 0:20:42.600 --> 0:20:45.480 that you know, sort of dark prices that the public 0:20:45.520 --> 0:20:48.880 would never see because it's an arrangement between a producer 0:20:49.000 --> 0:20:53.159 and a specific buyer, et cetera, versus more clearing house model. 0:20:53.240 --> 0:20:55.760 Like talk to us about pricing transparency that we have 0:20:55.920 --> 0:20:56.520 in this market. 0:20:56.640 --> 0:20:59.240 Ooh yeah, I love it. Just quick disclaimer here, there's 0:20:59.280 --> 0:21:01.600 subtopics that I know more of and our topics that 0:21:01.680 --> 0:21:03.720 I know less about. This falls into the category of 0:21:03.800 --> 0:21:05.800 the latter. But to my understanding, when it comes to 0:21:05.920 --> 0:21:09.160 prices and contracts in the polymer markets, the vast majority 0:21:09.560 --> 0:21:12.840 is stipulated by our contracts, although they're typically relatively short 0:21:12.960 --> 0:21:17.560 lived on a monthly quarterly basis. That's observation. I may 0:21:17.600 --> 0:21:21.440 be wrong, and in terms of the spot market, they're 0:21:21.440 --> 0:21:24.520 relatively small, but the spot market is real. But the 0:21:24.560 --> 0:21:27.399 spot market is usually where you see those price distortions 0:21:27.440 --> 0:21:29.440