By John Richardson
It really is unrelentingly depressing, even though we hear that a few investors in chemicals stocks are clinging-on to the hope that provided everyone maintains tight production, demand will recover very strongly in Q1 of next year.
We wish they were right, but sadly they are not.
Everywhere you turn it looks bad. Just look at these declines in European low-density polyethylene (LDPE) prices as one example.
Source of graph: ICIS pricing
At least in the case, the price slide might have been brought to a temporary halt by the closure of two plants – one in Sweden and the other in France. What about demand, though?
How rapidly conditions are deteriorating is evident from an 18 November ICIS news article from my colleague Nel Weddle, our European ethylene editor, and her ICIS pricing markets report for the week ending 25 November.
“European ethylene supply is finally rebalancing in the wake of significant cracker operating rate reductions and this low-but-stable scenario is expected to persist for the remainder of the year,” she wrote in the 18 November article, reflecting the views of market participants.
But in her 25 November ethylene pricing report, she said: “Last week’s views that cracker cutbacks had done enough to reign in oversupply, seem to have been rather short-lived.
“Several sources said they are once again concerned about supplies lengthening in the December period unless more drastic action is taken.”
Further cracker rate cuts are being discussed down to as low as approximately 60 per cent, the minimum that was said to be technically possible, from current production levels of around 70 per cent, she added.
Plants due to return from turnarounds may delay restarts.
The painful, and very risky, decision may soon have to be taken to close crackers down.
As recently as a week ago, a common view on PE in Europe was that output cuts would leave converters holding low stock levels in Q1.
Now the expectation is that end-users will be holding high inventories in the first quarter, which likely reflects the change in buying habits we discussed yesterday. Credit preservation and risk-aversion on fears of a collapse in crude, aka Q4 2008, seem to be the orders of the day.
“This is entirely different from Q4 2008. There is no one big event that has as yet taken place on the scale of Lehman Bros,” we were once again told last week by another senior industry executive.
Do you really want to bet that such an event will now not take place in the Eurozone?