Spain saves the world economy
Source of picture: www.fifa.com
By John Richardson
GLOBAL chemicals sentiment seems to be muddled and confused as the constant flood of positive and negative macro economic data.
Take last week’s American Chemistry Council (ACC) weekly report, for example, which at that time gave a clear indication that the US recovery was moderating.
“Consumer confidence sank on continued poor job prospects and a weak housing outlook,” wrote the report’s authors.
“The personal income and consumer spending report served to dispel fears about a double-dip recession. Nonetheless, still tight credit conditions and continued household de-leveraging foster headwinds against the pace of growth in consumer spending.”
The ACC also pointed to disappointing jobs-growth numbers, released last week, as a major cause for concern.
And it added: “New orders (for manufactured goods) slipped in May as the boost from inventory rebuilding is fading. The expected slowdown in the second half of the year is now upon us.”
The bad news on US unemployment, combined with Euro sovereign debt worries, was weighing on the minds of the 12 senior chemical industry executives we interviewed last week and early this week.
Eight of the 12 – which includes two vice-presidents at board level – now believe a double-dip recession is likely compared only four of the same 12 executives when we last conducted the survey in April.
But since then global stock markets have rallied on lower US jobless claims and growing optimism about the results of stress tests on European banks.
“It’s all xxxxxxxx I am afraid. The markets were looking for an excuse to stage a rally and so this doesn’t change the weak underlying fundamentals,” said a friend of the blog, who works as an investment banker in Singapore.
And as the Lex column in the FT points out today, US retailers have reported a third successive month of disappointing sales: Same-store sales were down by 3.1% in June.
Unless there is a federal extension to unemployment payments, 2.7m jobless people will soon lose government financial support – removing $41bn from the economy, Lex adds.
The better-off are being hurt by lower home equity values and face tax rises as Bush-era cuts expire next year and taxes are raised to tackle the budget deficit, says the column. One wonders where the US will get the money it needs to fund big investment in infrastructure, R&D and education that Dow Chemical CEO Andrew Liveris says is needed to turn the economy around in the longer-term.
However, the bltizschnell recovery in Germany has seen the country’s exports rise by 9.2% with industrial production 2.6% higher in May than June. This just shows the value of a consensus political system that values education and long-term planning – the exact opposite of Britain. We British don’t make anything anymore, remain far too dependent on financial services and public-sector employment, and are heading for a major fall.
Commodity chemicals and polymer pricing has been very firm in Europe of late, which the sceptics attribute mainly to tight supply.
But VCI, the German chemicals industry association, reported yesterday that capacity utilisation was “nearly back to normal”. Chemicals production in the first six months of this year was 13% higher than the same period in 2009.
“I don’t believe that the strength of the European market is the result mainly of production issues and therefore temporary,” said one of the 12 senior executives we surveyed, who doesn’t believe a double-dip is on the way.
“Another major supporting factor is the weakness of the Euro, which has declined by 25% against the US dollar since last year. This is giving the medium-sized manufacturing companies in Germany, for example, a lot of extra ability to export their technologies and their machinery.”
The current weakness in chemical pricing in China was the result of what he said was an “always opaque and confused short term outlook, whereas the longer-term outlook is great”.
Optimism was also high the other week at Arkema and BASF. Arkema was predicting record second-quarter results in the right direction and BASF said Q2 would be better than they had expected after a 98% operating profit improvement in Q1.
So what the heck is going on?
I am not entirely with my good friend and fellow blogger Paul Hodges, who believes all the pointers are towards a very-weak second half of the year.
The next six months are likely to see pockets of strength and weakness for companies with returns varying quite dramatically product by product segment and region by region.
With the benefit a couple of weeks to ruminate on what we said, I now think that Patrick Thomas, CEO of Bayer Material Science, provided a very useful guide to where these pockets of strength and weakness might be.
And, of, course, how can we not mention that now Germany has been knocked out of the World Cup, all fears of a double-dip recession have disappeared?