The Petrochemicals Shock That's Already Rippling Through Plastics

Everyone knows by now that war in Iran is curbing the flow of oil around the world. But oil isn't just a gasoline and jet fuel story, of course. It's also a crucial feedstock for a bunch of petrochemicals, including the building blocks of a variety of plastics. And we're already seeing polyethylene prices start to surge, with some producers in Asia declaring force majeure and curbing their output. So how much of the world's petrochemicals supply is now in danger? And what does it mean for the future of plastics and packaging, which is basically in everything nowadays? On this episode, we're joined by Philip Geurts, chemicals and oil analyst at BloombergNEF, to walk us through the numbers. Read more:Oil Crunch Threatens South Korea’s Garbage Bag, Ramen SupplyIsrael Says War Isn’t Ending Even as Trump Touts Peace Talks Only Bloomberg - Business News, Stock Markets, Finance, Breaking & World News subscribers can get the Odd Lots newsletter in their inbox each week, plus unlimited access to the site and app. Subscribe at bloomberg.com/subscriptions/oddlots Subscribe to the Odd Lots NewsletterJoin the conversation: discord.gg/oddlotsSee omnystudio.com/listener for privacy information.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Tracy Alloway?

  There are some market stories where you want every detail. Joe and I have made quite a few podcasts on that basis. But sometimes you've only got 10 minutes and just want to know what's moving markets fast. That's the Barclays Brief Podcast. Every week, experts from Barclays Markets and Research get you up to speed on what's happening and what to watch next. Concise, focused, and brief. Search Barclays Brief wherever you get your podcasts.

• 0:26Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw, innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 1:08Speaker 01

  and hiring practices, but according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at chatgpt.com.

• 1:52Speaker 01

  Bloomberg Audio Studios. Podcasts, radio, news.

• 2:07Tracy Alloway?

  Hello and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

• 2:11Joe Weisenthal?

  And I'm Joe Weisenthal.

• 2:13Tracy Alloway?

  Joe, I have a prop for today.

• 2:16Joe Weisenthal?

  Prop episode.

• 2:17Tracy Alloway?

  A visual learning aid for a podcast.

• 2:20Joe Weisenthal?

  Okay.

• 2:20Tracy Alloway?

  I'm gonna hold this up.

• 2:21Joe Weisenthal?

  Yeah.

• 2:22Tracy Alloway?

  What is this?

• 2:23Joe Weisenthal?

  Uh, it looks like a magenta marker.

• 2:25Tracy Alloway?

  Magenta?

• 2:26Joe Weisenthal?

  Yeah.

• 2:26Tracy Alloway?

  It's pink. It's hot pink.

• 2:28Joe Weisenthal?

  What's magenta?

• 2:29Tracy Alloway?

  It's like purplish pink.

• 2:30Joe Weisenthal?

  Really?

• 2:31Tracy Alloway?

  Okay. Color is beside the point. It is indeed a highlighter, but more importantly, it is a result of a complex petrochemicals supply chain.

• 2:41Joe Weisenthal?

  You're right. Magenta is more purplish. I don't know why I always thought it was a bit more pinkish. But yes, you're correct. You're right. You're correct. You're totally correct.

• 2:47Tracy Alloway?

  I didn't intend your major takeaway from this conversation to be the difference between pink and magenta. Okay.

• 2:52Joe Weisenthal?

  But yes, you're right. And without advanced chemicals of all sorts and oil and all that, you would never have the plastic shell of the marker and maybe even some aspects of what gives it color when you draw on something.

• 3:05Tracy Alloway?

  All right. So what is this plastic casing actually made of? This is a pop quiz.

• 3:10Joe Weisenthal?

  That I definitely have no idea.

• 3:11Tracy Alloway?

  Okay. It starts from?

• 3:13Joe Weisenthal?

  Yeah.

• 3:13Tracy Alloway?

  Crude oil.

• 3:14Joe Weisenthal?

  Yeah, that I, okay, yeah.

• 3:15Tracy Alloway?

  So crude oil distilled into?

• 3:19Joe Weisenthal?

  Keep going.

• 3:20Tracy Alloway?

  Naphtha.

• 3:21Joe Weisenthal?

  Naphtha, right. Naphtha.

• 3:22Tracy Alloway?

  And then naphtha is, this is a hint, cracked into?

• 3:27Tracy Alloway?

  Ethylene or propylene?

• 3:29Joe Weisenthal?

  Yeah.

• 3:30Tracy Alloway?

  We've actually done a plastics episode before.

• 3:32Joe Weisenthal?

  Yeah, I know. Yeah.

• 3:33Tracy Alloway?

  Okay. And then it gets polymerized?

• 3:35Joe Weisenthal?

  Yeah, of course.

• 3:36Tracy Alloway?

  Into polyethylene.

• 3:39Joe Weisenthal?

  Right.

• 3:39Tracy Alloway?

  And polypropylene.

• 3:40Joe Weisenthal?

  Right.

• 3:41Tracy Alloway?

  And then it gets chopped up into tiny little plastic pellets, which are, I know you know this one. What are they called? The little plastic pellets? One of my favorite words.

• 3:51Joe Weisenthal?

  Go on.

• 3:51Tracy Alloway?

  Nurdles.

• 3:52Joe Weisenthal?

  Nurdles. I remember all of this from that episode that we did. Nurdles.

• 3:56Tracy Alloway?

  The building blocks of highlighters and lots of other plastic products would be nurdles. Okay, so the reason we bring this up is obviously, there's a situation in Iran. The Strait of Hormuz is still closed. We're recording this on March 24th. And we're starting to see a lot of the disruptions in the oil market start to, I guess, ripple out into other petrochemicals.

• 4:19Joe Weisenthal?

  Right. And someone asked this on a Twitter the other day and they were like, Joe, are, is the higher price of oil gonna impact the price of plastics? And I was like, I would be very surprised if it didn't. I mean, I don't really know for sure, but it would be very weird. Like, it would be hard for me to imagine a scenario in which the key input doesn't. The thing that I am very curious about, and you described this sort of sequential chain of industrial processes from the oil to the nurdles. And of course, when we did the episode, um, one of the things that we've talked about is that there is a gap between the price of some of these end products and the implied price of crude oil.

• 4:59Joe Weisenthal?

  So crude oil, I don't know exactly where it is right now at this moment that we're recording it, but it shot up. But these end products have shot up even more. And our guest Rory Johnson had a really good explanation, which is that the refineries do not want to shut down. And so they're rationing, they're slowing their input, their input because it is very costly to shut down and ever restart, should they ever run out, which is a prospect, given that we're seeing a volumetric decline in the amount of oil available in the world. What I'm curious about, and which I don't know the answer, is whether this applies to all of the different processing steps along the way, which is, is there this sort of even greater price impact because the entities that do all these sequential industrial processes

• 5:43Joe Weisenthal?

  are slowing down because the shutdown and restart process is costly for them as well?

• 5:48Tracy Alloway?

  Well, I would say the added complication with a lot of petrochemicals is we are in fact seeing some closures already. So in Asia, we've had a few crackers, as they're called, Asian crackers, start to shut down their production and basically declare force majeure. And so we are seeing fewer petrochemicals get made in places like Japan and South Korea. I think the question, we're kind of Inching towards is whether or not this is just going to be a question of price.

• 6:16Joe Weisenthal?

  Yes.

• 6:16Tracy Alloway?

  Prices for plastics go up or an actual supply shortage in the sense that maybe you just can't get certain types of plastics or packaging. And one other thing I would just add, I think in the post-COVID environment, an underappreciated driver of inflation at that time was the cost of packaging.

• 6:34Joe Weisenthal?

  That's right.

• 6:35Tracy Alloway?

  Because we did see the cost of plastics go up. And if you think about what you're buying at a grocery store, like, OK, it's a bunch of carrots, but it's also a bunch of carrots in a plastic bag.

• 6:43Joe Weisenthal?

  In a plastic bag, completely, or a jar, or whatever. And I would say in a lot of the cases of foodstuffs in particular, you're mostly paying for the entire supply chain and the packaging of it. The actual food value is almost dirt cheap, if nothing. And so, yeah, are we just going to get outright shortages? What are the ripple effects? I don't think we have any idea. Probably one of these things that compounds the longer this war enclosure goes on. Many questions that we have.

• 7:11Tracy Alloway?

  All right, well, I am happy to say we do, in fact, have the perfect guest to talk all things petrochemicals. We're going to be speaking with Philip Gerz. He is the chemicals and oil analyst over at BNEF and a guy who lives and breathes polymers, hopefully not literally.

• 7:26Joe Weisenthal?

  Not breathes, hopefully not breathes polymers.

• 7:29Tracy Alloway?

  All right, Philip, thank you so much for coming on Odd Lots.

• 7:31Speaker 03

  Thank you very much, Tracy and Joe. And it sounds already sad to introduce me with living and breathing polymers, but I'll take it. I'll take it for sure.

• 7:39Tracy Alloway?

  Well, we're all filled with microplastics now, right? So you're not the only one. So I'm tempted to begin just by asking you to kind of list all the petrochemicals affected by the Strait of Hormuz, sort of like Forrest Gump style, ethylene, propylene, polyethylene, you go on and on and on. But just broadly, why don't you tell us about the Gulf region and its role in the petrochemicals supply chain?

• 8:03Speaker 03

  Phew, right, yeah, lots to unpack here. So when it comes to chemicals at large, let's maybe establish three different categories. We have the feedstock, like you already pointed out, Tracy, basically you almost don't need me here. But you have the crude oil that's turned into nafta and liquefied petroleum gas, which are butane and propane principally, ethane. Those are all the feedstocks that go into the so-called crackers and the crackers turn them in what we call base chemicals. There are technically six major base chemicals that come out of this, but for the sake of today's discussion, the major focus will probably be really around ethylene, propylene, if we want to get really fancy, we can talk about xylanes, paraxylene or butadiene.

• 8:45Speaker 03

  But a lot of the, really the majority of the bulk plastics that we talk about really come from ethylene and propylene and some from paraxylene in terms of polyethylene terephthalate or also more commonly known as polyester. So ethylene, propylene, xylene are turned into polyethylene, polypropylene and into polyethylene terephthalate or polyester. Now, you have a wide range of really different derivative chains. Even within polyethylene, you have a lot of subcategories and within those subcategories, you have other subcategories. Very simple terms, you have a three-way division into high-density polyethylene, low-density polyethylene and linear low-density polyethylene.

• 9:29Speaker 03

  Doesn't matter too much, but it's good to be aware of that when we talk about, well, in analyst terms about where the market is moving. We typically look at high-density polyethylene, what's the supply and demand there? Same goes for low-density. Obviously, they have different applications and also within those larger buckets, there are a lot of subcategories. Now, to circle back to the major theme here of what's the position of the Middle East Gulf? So within those three categories, firstly, the Middle East itself is a major exporter of polyethylene, polypropylene, et cetera, et cetera, especially of polyethylene. And when I say major, let's be specific indeed, polyethylene, polyethylene varieties, that's about 12% of global capacity.

• 10:13Speaker 03

  Production would be slightly higher, 13, 14%. Quite a significant chunk. To make that even more explicit, if you take those volumes, we're talking about eighteen million tons, one eight of production capacity. And Middle Eastern crack or Middle Eastern facilities typically run at very high rates, ninety to hundred percent. So roughly an equivalent amount of production. If you take all of that, that's basically as much as Europe slash slightly more consumes. So it's a lot, right? You have those volumes firstly being taken off the market directly, although a couple of asterisks here because technically polymers are exported differently than fuel. They're exported in a solid state, which means theoretically there should be the

• 10:55Speaker 03

  possibility of diversion that's slightly easier than for oil, naphtha or oil products in general. Big asterisk there. But if you take all of that off the market, you basically have the entirety of what Europe consumes all of the sudden disappearing. So that's step number one. Emphasis here on this goes especially again for polyethylene varieties. Polypropylene is slightly lower. We're talking about seven-ish percent of global production. PVC, polyvinyl chloride, which is used heavily in infrastructure, even lower, that's three to four percent. Styrene, which is another major value chain, we're talking about again six to seven percent. So the Middle East in terms of polymers, that's really, really a polyethylene story, but not exclusively. So that's step number one, the direct polymer

• 11:40Speaker 03

  exports. Step number two is, and that I would argue is really where you see the biggest impact, is on the feedstock side.

• 11:47Joe Weisenthal?

  Yeah.

• 11:47Speaker 03

  Again, this is something you can subdivide into three categories. You have direct naphtha exports. You have crude oil exports that are then turned into naphtha amongst others. So the refineries run on it. And obviously, if you have to cut refinery rates, you're also going to lose naphtha output. And you have, once again, called LPG, liquefied petroleum gas, which I'll just allude to, well, as LPG from now on, but that means propane, butane. So we have those three. They almost exclusively go to Asia. And when I say Asia, we can go into the nitty gritty details of how dependent each individual producer is exactly in those feedstock streams, because there are quite huge differences there. But in very broad terms, polymer exports, that's 12%. If we take the Naphtha exports and the crude oil

• 12:31Speaker 03

  exports, and we translate that into how much does ethylene and consequently polyethylene production would have to be cut in Asia, that's probably around 15 to 17% of global production. So that's really where predominant hit comes from.

• 12:46Joe Weisenthal?

  That was fantastic. First of all, quick question. So on Naphtha, is that typically produced where the oil comes from? How like tight is that if it's derived from crude oil? Is it typically right there? Or are there parts of the value chain where the oil gets shipped a long way and then the Naphtha is produced somewhere else?

• 13:04Speaker 03

  It's basically the latter, or rather, it just depends, right?

• 13:07Joe Weisenthal?

  Okay.

• 13:07Speaker 03

  The same as for refineries at large, it just depends on where your refineries are located. So if you look at the Middle East, for example, or let's take Saudi.

• 13:14Joe Weisenthal?

  Okay.

• 13:14Speaker 03

  Saudi produces around 10 to 11 million barrels of crude oil per day. But if I'm not mistaken, its refining capacity is around anywhere between 3 and 4 million barrels per day. So in that case, it refines a relatively small amount of its total production capacity.

• 13:28Tracy Alloway?

  So to Joe's point, why do places like Japan and South Korea, why do they have, you know, crackers who are refining Naphtha into other polymers at all?

• 13:38Joe Weisenthal?

  Ooh.

• 13:38Tracy Alloway?

  Why does that make sense for them? Or is strategically important?

• 13:41Speaker 03

  Well, history plays a huge role. Japan next to Europe and the US was really one of the front runners of the petrochemical industry. And that's also why, at the same time, even before all of this happened, Japan was also on the front line of losing its chemical industry. That's another topic we can get into later. But basically, your question would also be then, why aren't those products exclusively produced in the Middle East and then shipped?

• 14:05Tracy Alloway?

  Why not just import them? Why even bother refining them domestically?

• 14:09Speaker 03

  Well, I mean, it's not only a question of Nafa per se, right? But Japan also needs jet fuel, diesel, gasoline, et cetera. So all of those come into one supply chain. And another asterisk here is the Middle East. Again, the Middle East is also a major producer of chemicals. If you look at ethylene, for example, the largest by far, surprisingly, I don't need to turn this into a pop quiz. That's China. That's 61 million tons of ethylene, 25% of global capacity. Then comes the US, 44 million tons. A data, by the way, as of January 2026 provisionally. Then you have Saudi Arabia, 17 million tons, right? So you already have a huge step down here, but Saudi Arabia is the third largest producer, or in terms of chemical ethylene capacity at least. Then you have South Korea of 13 million tons.

• 14:52Speaker 03

  So what I'm getting at here is the Middle East already, Saudi as an example, produces a lot, has a lot of capacity, but because they're such extraordinary oil producers next to chemical producers, and the chemicals they produce locally, by the way, are largely gas derived. We can also get into that later. But they do both, right? They export a lot of polymers, a lot of chemicals, but they also export a lot of products. It's probably a bigger question in terms of the overall oil supply chain. Why companies have chosen to also build out the refineries in Japan, South Korea, rather than all in the Middle East itself?

• 15:42Joe Weisenthal?

  There are some market stories where you want every detail. Tracy and I have made quite a few podcasts on that basis, but sometimes you've only got 10 minutes and need to know what's moving markets and why. That's the Barclays Brief Podcast. Every week, experts from Barclays Markets and Research get you up to speed on what matters and what to watch next. About the time it takes to grab a coffee. So search Barclays Brief wherever you get your podcasts.

• 16:08Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 16:50Speaker 01

  and hiring practices, but according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.

• 17:31Joe Weisenthal?

  So Tracy obviously started the conversation showing her hot pink highlighter.

• 17:37Tracy Alloway?

  That's right, you learned something.

• 17:38Joe Weisenthal?

  But like, you know, if we have to go for a while without making highlighters, or maybe we reduce the colors of the highlighters, it's not the end of the world, the world isn't going to come to a screeching end, et cetera. But I imagine some things are a little bit higher on the value chain. And so when we talk about NAFTA, or we talk about some of these other things, what end uses would you be most worried about now? Because the volume or the capacity numbers that you mentioned are pretty substantial. So again, I'm not too worried if we go for a few months without making highlighters. What are the end use cases that you're watching right now that are like, oh, this could be a real problem?

• 18:13Speaker 03

  Oh, you guys had podcasts on fertilizers.

• 18:17Joe Weisenthal?

  Yeah, that's right.

• 18:18Speaker 03

  It's almost a very similar story. My main concern, without a doubt, would be food packaging.

• 18:21Joe Weisenthal?

  Okay.

• 18:22Speaker 03

  I am not aware of any fungible products for polyethylene to be used at the same scale for food packaging as well, polyethylene. So I do not know whether there is a viable alternative. Maybe there is, and I'm just ignorant about it. But to me, without a doubt, food packaging and packaging at large. It's very cliche to take your own topic and talk about how incredibly important it is to modern day society. But I mean.

• 18:46Joe Weisenthal?

  But this is the complexity of modern day society. And this is actually a very important point, which is that you joke. And it's like, everyone jokes is like, oh, what I do is the is the key thing holding modern day society together. Podcasting. But they're not, okay, podcasting, maybe not, but like, they're not wrong. Like, any one of these things go and the whole thing goes. That was the lesson from COVID. So you're not.

• 19:07Speaker 03

  Absolutely.

• 19:08Joe Weisenthal?

  So take the, take the credit. You're at the center of the world right now. So, yeah, all right, talk about food packaging and what you're worried about.

• 19:14Speaker 03

  Yeah, food packaging, packaging at large. I'm less worried about, let's say, infrastructure projects, right? Because if you take, let's say, high density polyethylene and polyvinyl chloride, a lot of them go into infrastructure projects. Hence why you could see in India, for example, since 2018, 2019, a huge surge in those chemicals demand, especially high density polyethylene, because there were incredibly large infrastructure projects, especially on water pipelines, if I'm not mistaken. So a lot goes into that. Still incredibly important, but if we talk about meeting really the urgent tasks of the day, which is making sure that everybody has access to their basic needs. I find it very hard to see how value chains can be constructed or how a shortage of polyethylene or other plastics can be circumvented, especially polyethylene here I'm concerned about because

• 19:57Speaker 03

  of the disproportionate impact. And we briefly touched upon, hey, if 12% of polymers are cut off, polymer exports from the Middle East and the feedstocks are cut off. But that's only a part of the story. There are many angles here to take. Overall impact, obviously, without a doubt, will be sizable. How sizable, time will tell. But I cannot think of alternatives to the problem we would be facing, which is packaging, getting stuff from A to B, making sure that stuff is conserved. So if anybody knows in the audience, please let us know in the comments or you get to learn.

• 20:33Tracy Alloway?

  So, okay, on that note, what are we seeing now in terms of polyethylene availability? So I mentioned that we have seen some crackers in Asia who have had to reduce their refining output. Are we seeing prices start to rise? Are we seeing outright shortages? What are you observing in the market so far?

• 20:54Speaker 03

  So I would kick this off by saying that everything happens with a significant delay. And especially now voyages from the Middle East Gulf to South Korea, Japan, take about eighteen to twenty five days. And while we're kind of now entering that period. So if you look at crude oil imports that went to South Korea, for example, you could see them still spiking in the second week of March, just because a lot of ships departed in late February, whether or not in anticipation of this happening, but there is a spike in the second week of March. So on the physical side, to me, it seems we have seen comparatively little impact yet. I think most of this will really materialize around early April and from there on it gets worse pretty

• 21:35Speaker 03

  quickly. Also, one important side note here, and people can again pitch in in the comments, but polyethylene markets are relatively opaque when it comes to the exact availability. So we talk a lot about run rates, even demand, right? One very cliche topic that's regurgitated a lot is demand in Europe is lukewarm. But if you look at apparent demand, which is trade plus some production run rate assumptions that are reasonable and based on company statements, you see that demand is pretty stable. So my point here is that demand, how much is consumed in the first place is a relatively obscure topic in the world of polyethylene and plastics, because if you look at what polyethylene consumption means, you have a lot, hundreds, thousands per market of small plastic converters, they take those

• 22:18Speaker 03

  pellets and they turn them into usable plastics. And to me, it seems that data collection there may not be as well developed as for, let's say, oil refiners, or maybe I'm just ignorant about it, but that's been my observation so far in the industry that demand numbers are hard to get by. So circling this back to where we're at right now, three, four weeks into this scenario, I'd be careful with any concrete data points you're seeing or any general statements about demand being down, about supply being cut. Force measures, for sure, we've seen an incredible high amount of statements of production being cut. We can also get into the details of which markets how much. But if you look at across Asia, you've had about thirty to forty crackers probably that have made statements

• 23:01Speaker 03

  in one way, shape or form. Quite often, though, that just pertains to production curtailments, not per se a full shutdown, or force measures, meaning that they cannot guarantee that they can supply their contractors with whatever the contract stipulates. Very long story, slightly less long. So far, my take is the impact has been relatively limited on the material front. We have seen price increases, by the way, especially on the NAFTA front in Asia. But I would be very surprised if this does not deteriorate very significantly over the next two to three weeks.

• 23:34Joe Weisenthal?

  By the way, I wasn't sure, I genuinely wasn't sure about this. There is polyethylene futures that trade on the Dalian commodity exchange. We have quotes on this. You can see they're traded in lots of five metric tons. So in USD, in the beginning of the year, it looks like they were trading at around $925 for five metric tons of polyethylene. Now around $1,300. So the price has already surged massively. I'm curious though, like, when we think about the market for some of these chemicals that you track, how much is

• 24:14Joe Weisenthal?

  it sort of open liquid markets versus long-term contracts, et cetera, that, you know, sort of dark prices that the public would never see because it's an arrangement between a producer and a specific buyer, et cetera, versus more clearinghouse model? Like, talk to us about pricing transparency that we have in this market.

• 24:34Speaker 03

  Ooh, yeah, I love it. Just quick disclaimer here, there are subtopics that I know more of and there are subtopics that I know less about. This falls into the category of the latter. But to my understanding, when it comes to prices and contracts in the polymer markets, the vast majority is stipulated via contracts, although they're typically relatively short-lived on a monthly, quarterly basis. That's my observation. I may be wrong. And in terms of the spot market, they're relatively small, but the spot market is

• 25:01Joe Weisenthal?

  That's what I figured.

• 25:02Speaker 03

  But the spot market is usually where you see those price distortions firstly showing up, right? And when it comes to the first three to four weeks, especially this week has been relatively, this week actually had quite a phenomenon because I just checked the prices an hour ago. And I was surprised by polyethylene in

• 25:20Speaker 03

  East Asia apparently stagnating over the past week, which to me either something is wrong with the prices that I was looking at, or some of my theoretical underpinnings are slightly off. So I'm curious about that for the next couple of days slash weeks.

• 25:33Tracy Alloway?

  Didn't that happen during COVID as well? Wasn't there a big arbitrage between like polyethylene prices in Europe and the US versus Asia? There seemed to be these big regional differences.

• 25:45Speaker 03

  Hundred percent. It depends on which part of the value chain you look at and whether you're looking at margins, which is what most companies are really curious about, right? How much profit can I actually make out of this versus prices? So if you talk about polyethylene prices, for example, they're comparatively low in Asia compared to Europe. The US is also low, but the US also only pays a fraction of the production costs because US is ethane or gas based. Asia and Europe are largely Naphtha based. And the reason, by the way, this is an important asterisk, almost going into a side tangent here, but it's very common within our industry to talk about how ethane, gas based production is more competitive, is cheaper. But one of the principal reasons why this is the case is because you only need 1.2 tons of ethane to produce one ton of ethylene. Whereas if

• 26:29Speaker 03

  you produce ethylene via Naphtha, you need about 3.2 tons of Naphtha. So you just need a lot more feedstock and obviously you get a lot of byproducts. But then for Naphtha cranking in Europe and Asia, their competitiveness also hinges a lot on what the price movements are of those byproducts, just as a side note.

• 26:46Joe Weisenthal?

  By the way, I'm looking at the European Naphtha swap of this trades in the NYMEX. That is at $842 per metric ton right now, but that was around 496 at the beginning of the year. So all of these different chemicals, polymers that you're talking about, massive spikes, obviously in the big spike, obviously, since the start of the war. What does it mean when force measure is declared? What does that actually entail?

• 27:15Speaker 03

  You tell me. No, it's, it depends a lot. Usually, again, we like to.

• 27:22Speaker 03

  Talk a lot in certain terms. I think a force majeure colloquially is implied to mean, oh, production is fully cut. It kind of depends. So to give you one concrete example.

• 27:31Joe Weisenthal?

  Okay.

• 27:31Speaker 03

  One Huo Chemicals in China has, amongst others, two very large crackers, 2.2 million tons in total in Yantai, Shandong region, hopefully not butchering the pronunciation too much. They declared force majeure for their supplies to the Middle East. So I looked at this and I was like, well, what does this mean? So you dig further, try to find something specific. The only thing I could find publicly announced is they're declaring force majeure on their supplies to the Middle East, which to me was very interesting because in the first place, very few Chinese producers are suppliers to the Middle East of certain chemicals in the first place. So the bottom line here being that when you read force majeure, at least that's what I'm doing, if I don't find anything specific, it's a big question mark and I usually assume it means reduced run rates. Question is then also by how much?

• 28:16Speaker 03

  Kind of a floor for a lot of crackers is 50 to 60% of their total capacity. Below that, it quite often is said it gets uneconomical, but it is a big question mark to me at least.

• 28:27Joe Weisenthal?

  So this came up in the context of jet fuel, but the sort of, the implied barrel price of jet fuel is higher than what a barrel of oil is trading for right now because of this dynamic where the refiners are running slow because it's costly to actually have to straight up shut down. Can you talk about that in the context of some of these chemicals? Does the same phenomenon apply that it is a very costly business choice to actually shut down the refinery? And do we see a widening spread between where the price of oil is right now and the implied price of oil by the end product price?

• 29:00Speaker 03

  Yeah, that's a great question. If I'm not mistaken, the spread has increased a lot over the past three weeks.

• 29:05Joe Weisenthal?

  Okay.

• 29:06Speaker 03

  Both in Europe and in Asia, but especially NAFTA price in Asia have surged. So here the following hypothesis. To me, it seems, based on what we've talked about earlier, how chemicals are used with a lot of it going into packaging and let's define actually how much. So polyethylene consumes about 60 to 70% of ethylene, which again is the main product that we're getting from NAFTA cracking. So let's just say close to more than half of NAFTA in one way, shape, form is used for polyethylene and those type of chemicals that are used for packaging. So half of it is pretty much dictated-ish by the packaging sector. Now, in reality, it's more complicated and maybe we can cut it to one third or so. It's a huge chunk either way. And to me, again, that sector seems pretty non-fungible.

• 29:51Speaker 03

  It's very hard to really destroy a lot of demand within an industry. If we talk about jet fuel, diesel and gasoline, on the other hand, we can introduce Carlos Sundays. We can introduce, or people will, at the end of the day, if flight tickets just become too expensive. Yeah, or cancel flights, just period. Exactly. Yeah, yeah. So to me, it seems that diesel, gasoline and jet fuel have more wiggle room for demand destruction than naphtha. That's my current hypothesis. And again, maybe I may be proven wrong on that because it's also the first time for me being in such a scenario. I mean, for all of us in a way. Yeah. But so when it comes to the spread between crude oil and naphtha for both Asia and Europe, my expectation is that, well, the argument seems to be very strong that that will increase over the next weeks,

• 30:36Speaker 03

  potentially months. For naphtha, a big question also that I'm just throwing into the room is how viable is it for refiners to actually shift more toward naphtha production, both from an economical and just engineering perspective? Right? Because within the industry, we often talk about those things as a given. Naphtha production is kind of fixed, which to an extent is true, but also not true. At a certain point, and maybe there are some chemical engineers here that know this better than I do, but at a certain point, it may even become feasible to switch some road fuel production toward naphtha production if indeed demand destruction on gasoline becomes stronger than naphtha.

• 31:11Tracy Alloway?

  I want to go back to, you mentioned China for a second. And I remember seeing headlines about China's petrochemical boom and worries about a glut in the market. And I think some of those headlines were like two months ago.

• 31:24Speaker 03

  Yeah.

• 31:25Tracy Alloway?

  Can China pick up some of this production? I assume it's getting some naphtha from, I would guess, Russia or Iran at this point. Like, what's going on there?

• 31:35Speaker 03

  Yeah, big question. Short term, no. Short term, minus if you would have a lot of production within refinery shifting away from gasoline to naphtha. Minus that scenario. And again, I don't know how technically feasible that is or economically for a lot of refiners. But other than that, I don't see any possible way where you could compensate for that, right? Because let's be specific. So we're talking about. Again, assuming a full disruption here, we talk about roughly seventeen, eighteen million tons disappearing from the Middle East. We talk about South Korea, Japan, so major Asian players here to be specific. We have South Korea first, Japan, Taiwan, Singapore, India, Thailand, and Malaysia, and Indonesia. Those, I think, should be

• 32:20Speaker 03

  eight. Now, if you take them together, they probably have an ethylene production capacity of around forty-five million tons-ish. So China and them together is about one hundred million tons, China sixty million, those others about forty million together. Out of those forty million, depending on again what happens, but probably around thirty million you could potentially discard. It's, don't quote me on that exact number, but just to give a ballpark, right? I don't see any possible way how you could compensate for that. You have some wiggle room because some cracking facilities were operating at lower rates. You can compensate there, and the US especially. But if you assume, for example, that the US was running at about eighty-five percent before, and they would

• 33:04Speaker 03

  go all the way up to ninety-five, hundred percent now, so ten to fifteen percent difference, that's about four to six million tons added. So that's basically one tenth of what more, one eighth of what would be lost in the most extreme scenario. And when it comes to China, thing is that those crackers are large projects. They take time. And the world at large had an incredible, incredibly large pipeline for twenty twenty-six, which is ironic, and which is why I emphasize polyathleins so much, because the amount of projects, like world scale projects that are very well covered, no uncertainty about whether they would come online or not, until now, they were set to come, and now they seem largely either off the table or a big question mark. So I don't see any way in the short term to compensate

• 33:46Speaker 03

  for such an extreme shortfall, if that were really to manifest to the utmost extent.

• 33:51Tracy Alloway?

  That's a really good example of how these short-term disruptions can linger for years and years and years. Okay, one other question on trying to fill the gap in supply. What about recycling existing plastics? I mean, we've been told for years and years and years, the world is awash in plastics. Like, okay, let's do something with them.

• 34:07Speaker 03

  Yeah, that's an excellent question. I don't see why recycling should not get a major boost from this if this persists. To me, that seems like a very reasonable solution. There are obviously a lot of asterisks where recycling has its own fair share of complications in terms of having to firstly distill the different types of streams. You also need production facilities for this, which also again needs time to be built. I'm utterly unaware of the existing utilization rate or of the utilization rates of existing recycling facilities, but.

• 34:37Tracy Alloway?

  Which probably tells you something about the importance of recycling in a petrochemical analyst career, but yeah.

• 34:43Speaker 03

  Exactly right. It's very much on the fringes. I'm very, very peripherally aware of it. But when I think about recycling facilities that I read on more anecdotally, they're usually in the range of a couple of tens of thousands to maybe a hundred thousand tons per year of production capacity, which compares to a world scale cracker. That's usually one to two million tons, right? So that's an order of magnitude lower. That said, if you look at the total share of global polymers that are in circulation that come from recycling, I find it hard to give an exact number, but maybe one tenth or so, because it depends on the substream. And again, it's not my forte per se. It's a reasonable amount and I could definitely see, especially within the timeframe of

• 35:27Speaker 03

  a couple of months, that this would gather a lot of speed or it would become priority to fill some gaps somewhere. But again, it probably falls short very significantly from really fixing the problem.

• 35:54Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture. And exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs. And hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices.

• 36:37Speaker 01

  But according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company. And Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute, brought to you by ChatGPT. Get started at ChatGPT.com.

• 37:17Joe Weisenthal?

  When we did a recent episode about natural gas, one of the winners, at least in the short term, was coal. And that countries that can't get natural gas, they're going to turn to coal for energy. And you see coal prices creeping up. What about coal liquefaction? In the short or medium term? I mean, you could turn coal into oil. The Germans did that during World War II, and that's still a thing. Can that in the medium term be, just derive our plastics from coal?

• 37:47Speaker 03

  Medium term, sure, but I don't think medium term is the problem here.

• 37:50Joe Weisenthal?

  Yeah.

• 37:51Speaker 03

  If we define medium term as what's a...

• 37:53Joe Weisenthal?

  That's not going to help us. Right.

• 37:55Speaker 03

  If we...

• 37:56Joe Weisenthal?

  But like, you know, if we say like, you know, this is going to reshape, like,

• 37:59Speaker 03

  Yeah.

• 37:59Joe Weisenthal?

  You know, like, the longer that this goes on, and we don't know how long that this is going to go on.

• 38:05Speaker 03

  Yeah.

• 38:05Joe Weisenthal?

  Could coal, at some point in the short to medium term, be part of the solution for the origin of our plastics?

• 38:14Speaker 03

  Beautiful question. I think the bigger question here is... Well, twofold. Firstly, if this continues, will it reshape how the global chemical industry works? Yeah. And the second part is maybe have we already reached that point? Because I think even if things were to quote unquote normalize, whatever that may mean right now. I think one major problem that we face is that the perceived risk of passing through the Strait of Hormuz has changed. Yeah. And a lot of Asian producers were already on the cusp of closing their business. And by a lot, I mean South Korea, Japan, Taiwan, Singapore especially. If you take them together, you talk about South Korea has thirteen million tons, Japan six million tons, Singapore and Taiwan both three to four million tons. So collectively close to thirty million tons.

• 38:56Speaker 03

  It's a lot. Not all of it was said to be closed, but to me, if I looked at the fundamentals, it seemed reasonable to assume that by twenty thirty, about thirty to fifty percent of this could disappear. Wait, wait, sorry, why? Very long story short, because the overcapacity that was in the pipeline, especially for polyethylene, was so severe that Okay. the case was very hard to make for some units to stay in business, right? And my hypothesis here is that what's happening currently, the increased perception of risk through the Strait of Hormuz for an industry in a market that was already perceived to be, well, really going downhill, pretty much could really lead a lot of facilities to just close down over the next couple of months, quarters. I would be very surprised if that does not happen. Then the question becomes what, well, two questions here.

• 39:41Speaker 03

  Firstly, what happens afterward if things indeed normalize? And then secondly, for the entire pipeline that exists for the next four to five years, a lot of it was also in Asia or the Middle East and hinged on feedstocks coming from the Middle East. What happens to that? And to go full circle here and to your coal question, that's something I looked into and that I wondered. So to put it into perspective, China right now has sixty million tons of ethylene capacity. Roughly fifty million tons of this is oil or gas based, so it comes from cracking. Ten million tons comes from coal. Okay. Slash methanol. Side note here also that because how it works is that coal is converted to methanol, which is then converted to ethylene or propylene.

• 40:26Speaker 03

  Methanol is also imported from the Middle East, so that could also cut into that production there. But when it comes to coal, it would need a really huge push. So now we have 10 million tons of ethylene. We have another roughly three to four million tons in the pipeline because China has been revitalizing that already before the war. But the push again would be extremely significant. You would be talking about basically three to fourfold quadrupling the sector over the next couple of years, right? Which in theory could happen, especially for a country such as China, which has proven in the past time and time again that it's very much capable of completely revamping industries. But it would be a big

• 41:05Speaker 03

  push. I think what's more likely to happen is three things. So firstly renewed, again also depends obviously on how long the supply disruption is, but I think we're well on our way. I think one renewed interest in the Western Hemisphere, using Western Hemisphere here more broadly, because I would say for the US, there's also a couple of asterisks in terms of the political environment, whether that is not considered to be too volatile. That out of the way, though, if you talk about chemicals and the potential there, there was a significant slowdown because of this overcapacity, but US producers right now are having a heyday. And even if this does not continue for a long time, I think again that this heightened risk or this heightened perception of risk at Hormuz really shifts

• 41:50Speaker 03

  a lot of production potentially to the US. So I'd be surprised if you would not see a lot of renewed interest in US ethane and US chemicals.

• 41:58Tracy Alloway?

  Yeah, this was going to be my next question, actually. So I'm looking at a chart right, this is going back to the beginning of our conversation. So this is a chart of sensitivity of different oil or fuel products to demand destruction.

• 42:13Joe Weisenthal?

  I'm cheating like on an exam. I'm like, you can't see it. I'm in the studio. I'm leaning over and looking at Tracy's laptop. It's like, I need to get a look at this.

• 42:21Tracy Alloway?

  So it actually, it has.

• 42:22Joe Weisenthal?

  It's a JP Morgan chart.

• 42:24Tracy Alloway?

  JP Morgan, yeah. So it has, you know, jet fuel is pretty sensitive because as we were talking about earlier, if the price of jet fuel goes up, flights tend to get curtailed. It also says that NAPTHA is pretty sensitive. And one of the reasons NAPTHA apparently is sensitive is because if prices for NAPTHA go up, then petrochemical plants can substitute ethane.

• 42:46Tracy Alloway?

  Which it seems we're starting to see. I'm also reading a Bloomberg. I'm doing my research for this episode. Wow. We're in the middle of the episode, but regardless of that, there's a Bloomberg story that saying that US producers of polyethylene are buying more ethylene to make plastics. What's the substitutability of ethane versus naphtha? Because you touched on this earlier, but I really want to drill down on this point.

• 43:11Speaker 03

  Not very high.

• 43:12Tracy Alloway?

  Okay.

• 43:13Speaker 03

  So two things here. I realize I like making a lot of lists without completing them, but maybe you can go to full circle on the other topics later. But on this two things. So first is just technical substitution. So the furnaces that are used for ethane and naphtha, they're pretty different in a lot of ways that they're configured. So switching between those two is pretty difficult. Very specifically, one major problem is the type of products that you get from both, right? So if you crack ethane, you principally only get ethylene in notable amounts. Whereas if you crack naphtha, you get ethylene, you get propylene, you get butadiene, you get benzoyl.

• 43:45Tracy Alloway?

  The byproducts you mentioned earlier.

• 43:46Speaker 03

  Exactly. Right. And they need to be separated. And there is a whole post this cracking section for that, that just vastly differs for naphtha cracker versus ethane. I think one common point of confusion is, so you have three major oil or gas feedstock streams. You have naphtha, you have LPG and ethane. And I would group LPG and naphtha as being more together than LPG and ethane, despite the fact that LPG and ethane are colloquially kind of referred to as being gas based. But LPG also gives a lot of byproducts. So the substitution possibility there is higher than for ethane. And also, if you just look at the practicality of it, they're comparatively outside of the US and the Middle East. There are not that many crackers that use ethane. And if they use ethane, they

• 44:31Speaker 03

  typically fully use ethane. Not exclusively. There are some exceptions, such as, I think, the one Huay chemical Yantai cracker that I mentioned earlier, one of those actually runs partially on ethane, partially on naphtha. But typically, if a cracker fully runs on ethane, it fully runs on ethane. Whereas for a lot of naphtha crackers, they play around with the LPG share depending on the price movements.

• 44:50Joe Weisenthal?

  I've learned a lot from this conversation. I would be lying if I didn't say that, you know, I'm gonna have to go back and look at what some of these things are, whatever. But just to help me conceptualize what some of these things are, I remember from Liberation Day, the trade fights in 2025, one of the few things that the US exports to China en masse, other than soybeans, is ethane. I don't know. What is it? Can you just explain that? Why do we have a lot of extra ethane? And why does China need to get it from a lot of us? And what does it go into?

• 45:25Speaker 03

  It all depends on what we mean by a lot. That's a very relative term.

• 45:30Joe Weisenthal?

  I just know that about half of all US exports of ethane, which is extracted from US shale gas, which probably explains why we have a lot head to China. So what are they? What's the deal with that?

• 45:41Speaker 03

  Yeah. So firstly, that mainly comes because the US is a very large producer of shale gas, which yields a lot of ethane, LPG. And because the US has, well, basically exceeded in its LPG ethane production, what it domestically needs, it has started to export a lot. And that's still ongoing. We still have some new terminals coming up in 2026 and beyond. It will increase the capacity for LPG and ethane to be exported. But the reason why I answered this question skeptically initially is because if you look at the total volumes, you talk about China, if I'm not mistaken, in 2025, imported around five or six million tons of ethane. And you can make, well, around five to six million tons of ethylene from

• 46:24Speaker 03

  that, which is about 10% of China's production capacity, right? So is that a lot, kind of ish?

• 46:28Joe Weisenthal?

  I see what you're saying.

• 46:30Speaker 03

  So that's one.

• 46:30Joe Weisenthal?

  It's kind of a lot relative to US industry, but it's not really a lot in the grand scheme of how much China is using and producing.

• 46:39Speaker 03

  And even for the US, this is probably, if we convert this into barrels per day, it's probably around 200,000 to 300,000 barrels per day, which

• 46:48Joe Weisenthal?

  Even this article I'm saying says about half of all US exports of ethane go to China, which means this is just a fraction of total ethane production in the US.

• 46:58Speaker 03

  Exactly.

• 46:58Joe Weisenthal?

  Okay.

• 46:59Speaker 03

  So that's, I think, the Entire ethane story is relatively, if I can use the word overhyped. Because I think if you just read the articles.

• 47:07Joe Weisenthal?

  Yeah.

• 47:07Speaker 03

  It seems like there's a huge wave of new ethane crackers in Europe and in Asia, et cetera. But if you really double down on which facilities they are in Europe, it's one.

• 47:16Joe Weisenthal?

  We're busting the ethane hype on watch. Where it's like, all these people going around. Yeah, the ethane hype ends now, I think, yeah.

• 47:24Speaker 03

  By the way, by the way, guys, to actually finish one of my lists, because I was mentioning already how there are two, two points on US and ethane and how much flexibility there is there. I think another thing is just production volumes that goes up, but it goes up steadily.

• 47:37Joe Weisenthal?

  Yeah.

• 47:37Speaker 03

  To me, it seems very unlikely that production could surge by that much that you could really substitute for any notable amounts. And that's the second point on ethane substituting for NFA. There's just, there are limited suppliers for now that can go up, but also that takes time.

• 47:52Tracy Alloway?

  Hmm. I have an informal gauge of how bad things are. And it's the sort of cocktail party question type thing. But, you know, when you're going out and speaking to people now as a petrochemicals analyst, how many people are starting to actually get very interested in the future of plastics? And maybe get very worried when they talk to you.

• 48:13Speaker 03

  Bold to assume I go out and speak to people.

• 48:17Speaker 03

  We'll stop there. No, poo. I think the conversations have changed. I mean, more on an informal note here, right? Because I've been in the industry for four years, like I mentioned, oil more broadly, two years and petrochemicals, two years. During the first two years, and maybe that was also more the zeitgeist back then, 2022, 2023. A lot of the conversations were about the morality of working as an oil analyst.

• 48:39Joe Weisenthal?

  Oh, yeah.

• 48:40Speaker 03

  Now, a lot of that has dissipated, or maybe I just don't talk to those people anymore. I'm not sure. But I think nowadays, people, to my observation, approach those questions a lot more practically. And a lot of people are all about petrochemicals. I think a lot of people are more curious about the baseline understanding of how the industry works, if they're curious at all, right? Because, I mean, quite frankly, for a lot of, I struggle, I, I talk to people from time to time, but very rarely actually about petrochemicals. Also, because it takes kind of a baseline denominator to get into it. And I feel that.

• 49:19Speaker 03

  You need to bombard a counterparty with a lot of baseline information to kind of get to an interesting point, to which I'm like, they're probably also not that interested in that.

• 49:27Joe Weisenthal?

  Well, I have one last question, which is just tell us about the next several weeks. And what are you looking out for? And how bad could it get? And what is the timeframe for that? Give us your sort of outlook you're telling clients. They ask, how bad is it? What's going on? And let's suppose we, none of us know when the war is going to end. It could, we're recording this March 24, 9:53 a.m. It could end by the time this episode comes out, but let's just say we don't know. The war is going on in a month, suppose. What, how, what are we looking at?

• 49:56Speaker 03

  Still one asterisk there, whether the war continues or not, which we talk about in binary terms. It does not mean that the straight of her moves will become accessible again.

• 50:02Joe Weisenthal?

  You're right.

• 50:03Speaker 03

  Just an important caveat.

• 50:04Joe Weisenthal?

  You're right.

• 50:04Speaker 03

  So that's when I look over the next weeks or months. Again, I usually abstain from giving any political commentary, but to me as an analyst, just looking at baseline assumptions over next weeks or months, the assumption that the straight of her moves will become passable again, to me is very hard to make. So that's my first really major takeaway, at least when I look at my own forecast outlooks, which partially have become completely obsolete. We need, I need to overhaul, but I'm very inclined to make that assumption. Still waiting for a couple of days, weeks to see how things develop. But that's my first really major thing that I, I just find the argument that the straight of her moves, that things return to normal in terms of shipping incredibly hard to make. So point number one.

• 50:45Speaker 03

  Now, when it comes to chemicals, firstly, spread between NAFTA and crude oil, especially in Asia, I expect a surge, especially to surge in early April. Reason being because Asia still has to tap into its inventories, NAFTA inventories. They're not a lot, but they can cover a little bit of ground. We again, still have to see the impact of the voyages. I think we've just bought that time. We're now entering the phase where you really see more material shortages. I think all of that will peak in early April. And then again, technically depends on what happens next. That's point number one. Point number two, what I'm really looking out for is any announcements on projects that were in the pipeline from China and technically the Middle East, but the Middle East I have

• 51:26Speaker 03

  already kind of provisionally done away with, with, well, that's probably not going to work out in 2026, 2027. Any projects for, planned for 2026, what happens there? Point number three, what is China's strategy here at large going forward? Because China is in a very interesting position. It's not as badly affected as South Korea or Japan. But it still changes a lot of things because well, for a lot of new facilities, for example, so China had about 20 million tons of new ethylene capacity in the pipeline, almost all of which coming from Cracking, almost all of which coming from Nufte, a lot of which hinging on crude oil coming from the Middle East. What happens to that? That's a big question mark to me. And I'm curious to see indeed whether we're going to see a shift more toward new coal-based facilities.

• 52:10Speaker 03

  I think that would take a couple of months rather than weeks, but that's something I'm looking out for. And in the same vein, two more points, one being Western Hemisphere, US, will we see a researched interest in investments? And Western Hemisphere, Latin America, Bolivia, Peru, Venezuela, which had a lot of interest in the chemical industries in the past, but it was dropped again. Will we see a renewed interest there and potentially in Argentina with a lot of shale gas? And then lastly, Europe. Europe is very interesting because up until recently, I've been going on and on about how Europe's chemical industry is in decline. And it was. Now ironically, and this is a big topic of debate, but I take the stance that all of this happening, very much more likely than not is a net benefit for a lot of chemical producing Europe.

• 52:55Speaker 03

  And this is a big topic to unpack, maybe for another time. But I would definitely be watching indeed whether this turns out this way for European producers.

• 53:02Tracy Alloway?

  Philip Gerth, thank you so much for coming on All Thoughts. Really enjoyed the conversation. That was a lot of fun.

• 53:08Speaker 03

  Thank you too, guys.

• 53:21Tracy Alloway?

  Joe, that was a lot of fun. I always appreciate analysts who come with the numbers, just memorize, right? And just rattle off like, well, there's a difference between production versus capacity, all of that.

• 53:32Joe Weisenthal?

  Right. Or there's like, okay, South Korea, Malaysia, Japan, Indonesia, all right, Singapore, they could see to 44 million that, yeah, now people who can do that, those are the people that always know their stuff and details matter.

• 53:47Tracy Alloway?

  But the last question you asked about, you know, what Philip is looking out for and his answer. I wrote about this in the All Thoughts newsletter yesterday, which is why it's on my mind. But like, when we're talking about the closure of the Strait of Hormuz, we're basically talking about like, the choke point of all choke points in the global economy, right?

• 54:06Joe Weisenthal?

  Yeah.

• 54:06Tracy Alloway?

  And obviously, oil is a big part of that, but as we just learned in this episode, so is petrochemicals, so is fertilizer, we've done previous episodes on that. And so, it strikes me as almost inevitable that people are going to come away from this experience, no matter how long it goes on for, with the intention to build out their own capacity, or secure their own supply.

• 54:28Joe Weisenthal?

  Yeah.

• 54:29Tracy Alloway?

  And it was interesting, even in a place like Europe, which we tend to think of sometimes as in structural decline, certainly in terms of its chemicals industry.

• 54:38Joe Weisenthal?

  Yeah.

• 54:38Tracy Alloway?

  Even there, like, you could see a revival as a result of this. Even, you know, three weeks' worth of disruption.

• 54:45Joe Weisenthal?

  Yeah, I really think this is the main story, it was the main story before the start of the Iran war, and now clearly an accelerant to this story, which is just every country wanting to have greater capacity domestically, and to be less reliant on choke points. And look, if we knew for a fact that the Strait of Hormuz was A, going to reopen, just as it was a month ago, and B, never close again, how would you possibly know that? Then it's like, oh, we don't need to do anything. But like, we're in a state, we know now that like, it is closable. We know it's closable. Not only do we know that it's closable, we know that it's closable without a particularly large military effort, that you fire a few

• 55:28Joe Weisenthal?

  drones or missiles a day, not even a particularly costly effort.

• 55:33Tracy Alloway?

  Yeah.

• 55:33Joe Weisenthal?

  And you can bring so many industries, and so many countries, and so much activity, basically, to a halt. That fact can never be unknown again, basically. That's sort of what Taleb talks about when he, that is sort of the significance of a black swan, that that word gets abused a lot, because every time an event happens, a black swan. But the key insight, where I find it actually to be a useful phrase, is if you think all swans are white, and you see a black swan, then you know for the rest of your life.

• 56:03Tracy Alloway?

  You know they exist.

• 56:04Joe Weisenthal?

  That you know that they exist. And so it is a black swan in the sense that if the Strait of Hormuz can be closed, which is something that people have contemplated before, with relatively little effort, you're going to know that the rest of your life and that's going to change planning for the rest of your life. And it'll be really interesting to see. It's also just interesting, I think, his point about how because of Chinese supply, so many of these Korean, Japanese, et cetera crackers were already in trouble.

• 56:32Tracy Alloway?

  Yeah.

• 56:33Joe Weisenthal?

  And now what's going to happen there? I mean, that is also a really big structural shortage, this sort of a, the milkshake of economic activity pouring into China relative to everywhere else. So lots of things going on at once.

• 56:46Tracy Alloway?

  Well, also the non-substitutability of polyethylene.

• 56:50Joe Weisenthal?

  Yeah.

• 56:50Tracy Alloway?

  Especially packaging.

• 56:51Joe Weisenthal?

  Yeah, yeah.

• 56:52Tracy Alloway?

  Like the idea that we're not all suddenly going to switch to burlap bags and bring our own like wooden crates to, to pick up like beams from the. Yeah, I could see that being an aesthetic choice.

• 57:03Joe Weisenthal?

  But that's not a scalable solution.

• 57:04Tracy Alloway?

  But not scalable.

• 57:05Joe Weisenthal?

  No.

• 57:06Tracy Alloway?

  All right, shall we leave it there?

• 57:07Joe Weisenthal?

  Let's leave it there.

• 57:07Tracy Alloway?

  This has been another episode of the Odd Lots Podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

• 57:13Joe Weisenthal?

  And I'm Joe Weisenthal. You can follow me at the Stalwart. Follow our producers, Carmen Rodriguez at Carmen Arment, Dashell Bennett at Dashbot, and Kail Brooks at Kail Brooks. And for more Odd Lots content, go to Bloomberg.com/oddlots for the daily newsletter and all of our episodes. And you can chat about all of these topics 24/7 in our Discord, discord.gg/oddlots.

• 57:34Tracy Alloway?

  And if you enjoy Odd Lots, if you like it when we talk about nurdles and other polymers, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad-free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.

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