Lauren Williamson, VP for Commercial Products, talks to leading olefins experts Sarah Rae, Jimmy Levine, and Ron Baughman, plus analyst Chris Cothran about the Argus Olefins Outlook:
- Market direction and underlying trends over the next 12 months
- Expansion projects and regulatory policies that could affect prices and trade flows
- Information or visuals with deep relevance to the market
- How we forecast 24 months ahead
- Insights to help subscribers make better business decisions
This podcast is delivered by Argus’ olefins experts using data and insight from the Argus Olefins Outlook.
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Transcript
Lauren Williamson: Hello everyone and welcome to the "Chemical Conversations Podcast" for the Olefins Outlook brought to you by Argus Media. I'm Lauren Williamson, the Vice President for Commercial Products here, and I'm joined by Sarah Rae, Jimmy Levine, and Ron Baughman, our lead olefins experts, and Chris Cothran, our olefins analyst. Jimmy, tell us, what is the overall direction of the market in the next 6-12 months, and what are some of the biggest factors underpinning the trends right now?
Jimmy Levine: Lauren, unfortunately, we see the trend over the next 6-12 months as one being down in March in all regions, at least for integrated derivative margins. The US may well enjoy higher margins due to natural gas, derived feedstocks, and other regions that can crack ethane or gas-based feedstocks may also see better margins. But the key issue is gonna be one of unraveling the supply chain constraints where we get back to some closer state of normal where there's competitive pricing, and therefore margins are gonna come down as soon as those supply chain constraints start to come down.
Lauren: And Sarah, can you tell us are there any major expansion projects or regulatory policies that could meaningfully affect prices or trade flows in the months ahead?
Sarah Rae: Oh hi, Lauren, yeah. Thanks for the question. I think the biggest elephant in the room at the moment is the conflict between Russia and the Ukraine, and the impact that's having on the feedstocks as Jimmy talked about, and the flows of product from that region into other regions. So, that's a major issue. It's pumped up oil prices and it's affected lots of the European producers and is having global ripples in terms of ramifications coming out of that. In terms of new projects, well, the US has got a couple of big new crackers that are coming up this year in the Russian region. They've got the Balkan crackers, which were due to come on stream in 2021, and a couple of other crackers, all of which we think will continue to make progress, but probably slow in terms of the total projects. China is also continuing to build a number of ethylene crackers, which is weighing on the market and feeding into what Jimmy was talking about in terms of oversupply. For propylene, it's really a massive build across the globe. China is leading the charge with an enormous amount of new PDH capacity, almost doubling their PDH capacity in two years.
Lauren: I know one of the elements to the Outlook includes a look at supply disruptions, new supply coming on stream, which is great. So, Chris, let's turn to you. What is your favorite element of the Olefins Outlook? Maybe there's a particular piece of information or a part of the service that you think is really relevant and most helpful for readers while they're interpreting the market.
Chris Cothran: What's the most helpful for me as an analyst is to see the feedstock product price dynamics, and the way they relate to polymers, the charts depicting that interaction. It's not really clear just looking at a single price, so seeing the sort of complex interactions is very helpful. One of the features we've added recently is the “What's Changed” section, providing a focus to the complexity, and what's changed month over month because that will shape the forecast going forward. And also, the sensitivities that are discussed within the text and giving a qualification on how impactful any given change will be is helpful too because that's not as evident, particularly on a region-by-region basis. Highlighting those factors is I think the most useful.
Lauren: Absolutely. Those are great points. And maybe I can turn it back to the group now. Perhaps you could share with us some of the methods you use for forecasting 24 months ahead. What steps do you take to arrive at those conclusions?
Sarah: The biggest use for forecasting olefins is forecasting oil and the downstream products on that side of it. So, we take the Argus forecast for those products. There's a process we go through to get there. Some of it is driven by models, but it's also overlaid by humans who just check the validity of that. And then when it comes down to the propylene and ethylene side, we do it on a regional basis, which I think is a very strong point of our forecasting. We, too, use some element of models, looking at margins, but again, we're not constrained by those models. We look at turnarounds coming up. We look at the supply and demand balance that we reflect from our analytics products. And we talk as a group about how we think that's gonna impact the margins going forward through the 24 months.
Jimmy: Like most businesses, olefins is becoming more and more global. And let me just emphasize one of the first steps we take after we determine the feedstock and energy prices. And that is to assemble our global team of experts, and review what's been happening in the market, changes versus what we expected last month, and impact changes that will affect other regions. Then all of our experts have good visibility of what's happening in other regions and how that may affect them. A key differentiator for us is the expertise of our global team and understanding of what the fundamentals are that are driving things, as well as the likely behavior of market participants to arrive at what our final forecast is.
Ron Baughman: Beyond that, we also have some sort of extraneous things that we take a look at that can change forecasts as well. Two months ago we didn't have any idea that there would be a conflict in the Ukraine with Russia. And we also continue to see the impact of logistical issues both on rail, shipping, trucking, marine freight, etc., that influence how much can move from region to region or within a region, or away from docks, and so forth, certainly, in the United States. So all of that extra stuff, if you will, even if it's potentially intangible, can have an impact on what the forecast ultimately is when it rolls out in the Olefins Outlook.
Lauren: That's a great point, Ron. And let me stick with you and maybe continue that thread for a little bit. The nature of forecasting, it's always challenging and of course, people want to know the prices in the future. But outside of that, what are some other ways they can use the information data in the Outlook to help them make better business decisions?
Ron: I would say that the Outlook is a great read because subscribers can look to Argus consultants reporting on items. We're in constant dialogue with market players at all levels. We collect and highlight details that most readers wouldn't be able to get elsewhere with their busy schedules, or in a timely way, to consolidate that into a narrative of what's really going on in terms of pricing, and supply and demand, and changes that are going on with capacity and so forth. And bundling in all that together to make sense to provide a product in the monthly Outlook that helps people make decisions. Readers, I think can trust what they see in the Outlook because it's been put together by experienced professionals, like my colleagues here on this call, who network extensively. And that helps us describe issues that are of greatest importance, and in a timely way for people to make big decisions that they're making day in and day out.
Lauren: Thank you so much for that. With the markets as volatile and active as they are today, certainly, a service like this provides a lot of benefit. And it also keeps everybody very busy monitoring the markets. And I know we all have day jobs to get back to now. So, I want to thank you all so much for listening. We hope that you found it useful and insightful. And to find out more about the Argus Olefins Outlook, or Argus' other chemical products, you can visit www.argusmedia.com/chemicals. Thank you.
This podcast is delivered by Argus’ olefins experts using data and insight from the Argus Olefins Outlook.
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