The blog was in sober mood when giving its usual New Year Outlook in January, warning that “renewed global recession appears to be the major risk facing us at the start of 2013“. Developments since then only reinforce its caution. Europe and Asia are now seeing widespread weakness in demand:
• In Europe, the chairman of German major Lanxess, Axel Heitman, warned last week that “Q1 demand is poor and we expect only a slight increase for Q2″. “Typically”, he added, “we have very strong first and second quarters with around 60% of our EBITDA being generated in H1“.
• In Asia, there has been no rebound after Lunar New Year. India looks worst impacted with Mitsubishi delaying the restart of its 800kt PTA plant at Haldia due to lack of demand. Several producers have also felt forced to introduce price protection policies to support sales
• In both regions, it also appears that many plants are operating at very low rates. in addition, it seems that increasing numbers of plants are taking unannounced ‘maintenance shutdowns’ as inventories build up.
So far, the US appears stronger. But the blog has always worried that today’s apparent recovery has been heavily influenced by political developments, with the administration naturally doing everything it could to support the economy in the run-up to last November’s presidential election. And Q1 railcar loadings, “the best real time indicator of industry activity” according to the American Chemistry Council, are down 1.4% versus 2012.
Q2 could be very difficult indeed, if today’s lower level of demand continues. January and March are normally 2 of the 4 strongest months in the year. Yet as the chart above shows, prices for the products in the blog’s Downturn Monitor portfolio are all now falling quite sharply.
Yet financial markets continue to assume ‘all is for the best, in the best of all possible worlds’.
US inventories rose by an astonishing 1% in January (twice the expected amount, according to Bloomberg). Yet this was taken as a sign that companies was stocking up ahead of an expected boom. More likely, however, it indicates that sales were actually much lower than expected.
This is further confirmation, if any were needed, that oil and western stock markets have lost their essential role of price discovery. Instead they are being carried along on a flood of central bank liquidity. The moment when they reconnect with reality could well be very painful.
Benchmark price movements since the IeC Downturn Monitor’s April 2011 launch, and latest ICIS pricing comments are below:
PTA China, red, down 18%. “Prices remained on a downtrend on the back of a slowdown of downstream polyester demand
Naphtha Europe, dark brown, down 18%. “Demand from the petrochemical sector is poor”
Brent crude oil, blue, down 13%
HDPE USA export, purple, down 11%. “Price reductions are related to a noticeable decline in demand, and the perception of high inventories throughout the chain”
Benzene NWE, green, down 4%. “Activity remains subdued amid bearish macroeconomic conditions and poor demand from key derivative sectors”
S&P 500 stock market index, brown, up 14%