Commodity chemicals won't see the same "break"

Implications: Specialty chemical are not as sensitive to underlying raw material costs as commodities.  In addition, the structure of specialties softens the price volatility.  Commodity chemicals will not enjoy these kinds of results as energy prices increase, a recession looms, and increasing global capacity dampens export prices.

Analysis:  While specialty chemicals have a bit more leeway in margins, the commodities are on a short leash.  The constant dynamics in commodity plastics, for example, is the ability of producers to move price increases from volatile energy through to buyers.  Since demand has slowed, producers are caught between $100 oil, which translates into very expensive feedstocks, and buyers who can pick and choose when to add inventory.

Last year, exports provided the incremental volume to keep plant operating rates in plastics high enough to show acceptable margins.  With the domestic market down, there will be greater pressure on exports.  New capacity in the Middle East and Asia will put a lid on prices, most likely cutting margins.  The stable capacity situation in the US will shorten strife of a recession.  However, operating rates are still likely to fall over the next six months.

So, while the specialties have a bit of margin insulation, due to a technology premium in the price, the commodities don’t get this advantage.  The commodity assets are the expensive, inflexible ones that must pay off.