Which Chemical Company Will Be Hit Hardest By The Supreme Court's Mercury Ruling?

In a recent report, Macquarie analyst Cooley May discussed recent developments in the U.S. chemical industry, including fallout from the recent Supreme Court mercury ruling. May also provided Macquarie's outlook for a strained European ethylene market.

Mercury ruling

The Supreme Court overruled one of the Obama administration’s most ambitious environmental initiatives this week, a new Environmental Protection Agency (EPA) air quality rule that was intended to limit emissions of mercury and other toxic pollutants from coal-fired power plants.

The Supreme Court decided that the EPA did not properly consider the cost of the new regulation. However, according to May, the Mercury battle is far from over.

“Though we view this as a headwind to the EPA’s proposed limits on mercury, arsenic and acid gases emitted by coal-fired power plants, known as mercury and air toxins (MATS), we also do not think that the verdict is final as it highlights the cost of implementation as the key reason to shoot down the EPA proposal and our readings suggest that the EPA will ‘swiftly address the Court’s concerns,’” May explains.

Related Link: Why The Supreme Court's EPA Decision Isn't A Big Deal

Fallout

As it stands, Macquarie sees Albemarle Corporation (NYSE: ALB) and its bromine segment as the biggest loser from the mercury ruling. One of the key methods of mercury removal involves the use of bromine, and MATS-related bromine demand was seen as a driver in the bromine industry headed into 2018.

Despite the court ruling, May points out that mercury removal accounts for less than 2.0 percent of global bromine demand, and that Chinese demand for bromine-based mercury removal continues to grow.

European Ethylene

Relief for regional European ethylene buyers could soon be on the way. According to the report, the Middle East may soon step in to contribute greater ethylene supply to the tight European market. While the biggest ethylene consumers in Europe, Dow Chemical Co (NYSE: DOW) and LyondellBasell Industries NV (NYSE: LYB), are both integrated via its own crackers and ethylene supply into derivatives, European ethylene buyers will welcome the potential new supply from the Middle East.

Macquarie forecasts that the 15-20 percent of European ethylene production that is currently offline will return to the market by the end of the year and provide price relief for European buyers.

Image credit: jacinta lluch valero, Flickr