Global chemicals capacity utilization
Chemicals are the best leading indicator for the global economy. And they are confirming the problems created by 20 years of central bank stimulus as the I.C.I.S. chart shows:
- Normally, companies would only build new capacity when they had customers for the new product
- But in the world of stimulus, vast amounts of virtually free cash were printed by the banks
This gave boards a problem if they weren’t sure that demand would really be there in the future.
If they were cautious and didn’t invest, but their competitors did, they would lose market share for the long-term. And that would badly impact future profitability.
STIMULUS LENDING KEPT ON INCREASING
MAJOR CENTRAL BANK STIMULUS SPENDING
2003 – 2024
And the central banks made the dilemma worse. They kept increasing the stimulus volume:
- Their balance sheet began at just $3tn in 2003 and doubled to $6tn by 2007
- The 2008 crisis was a clear warning to stop, but instead they increased it 8x to $49tn
- The pandemic provided a further excuse to carry on printing, and it rose to $73tn last year
At the time, of course, interest rates were very low. And so people were able to keep borrowing as the credit bubble grew.
NOW THE BUBBLE HAS WELL AND TRULY BURST
But of course, if “something is too good to be true, then it usually is“. If it was really possible to keep the economy going by printing money, it would have been done hundreds of years ago.
So now, the bubble is bursting. Again the chemicals industry is the leading indicator as the chart based on I.C.I.S. data shows.
The I.C.I.S. Pricing Indices all peaked in 2022 as the impact of stimulus began to fade and interest rates to rise.
The global index has since fallen 25%. And prices are drifting lower today as buyers destock due to weak year-end demand.
POLYETHYLENE PRICES SHOW THE SCALE OF THE PROBLEM
Post – September China stimulus barely moves the needle
Now, the chart from I.C.I.S.’s John Richardson confirms the problems created by all this stimulus:
- Margins kept in a reasonable range until December 2022, averaging $435/t
- They were slow to react as China’s housing bubble began to burst, when Evergrande collapsed
- But then reality finally broke through – since when margins have been negative
It already seems clear that stimulus meant billions of dollars was spent on creating today’s major over-capacity.
DEMOGRAPHICS IS DESTINY – THE BOOMERS WILL ALL BE PERENNIALS NEXT YEAR
PERENNIALS 55+ POPULATION IN ‘TOP’ ECONOMIES 1950 – 2023(F)
Reality has now dawned, and there is clearly a need to develop new strategies to avoid the obvious problems ahead.
Luckily, there is a major new opportunity now appearing, as the chart shows for the world’s ‘Top 10’ economies.
2025 is the moment when all the BabyBoomers (born 1946-70) will move into the lower-spending, lower-earning Perennials 55+ cohort.
This marks the moment when – for the first time in history – global population growth is no longer due to more babies being born. Instead, it is due to increased life expectancy, as discussed earlier this month.
This creates major new opportunities as the Perennials are the most under-served generation in history. And they need a lot more than adult diapers and walking sticks.
Companies who pivot to adopt a service orientation focused on meeting Perennial demand, are therefore likely to be very successful.