FocusSlowdown not recession for Europe chems

08 February 2008 14:41  [Source: ICIS news]

By Nigel Davis

Europe chem producers wait for slowdownLONDON (ICIS news)--Chemical producers are expecting slower growth later this year but on Friday were not reporting any major impact on demand from the US economic slowdown and global credit crisis.

“People in the markets appear mixed, some like me, are worried, others are optimistic,” one polyvinyl chloride (PVC) producer said summing up the view of many in Europe’s chemicals markets.

“I am certainly concerned about a slowdown in the short-term but so far we have been doing good business on PVC and PE (polyethylene), even though prices look like they might come down.

We haven’t seen any drop in demand yet. Perhaps in the next quarter,” he added.

“I think March and April will give a better idea about how the market is moving in Europe,” said one phthalic anhydride producer.

The cautious sentiment was expressed across most markets although those more closely linked to sectors such as construction and automobiles were feeling pressure.

Sources in the ABS and polyurethanes markets expressed concern that a recession could well be inevitable, perhaps later this year. However, none reported any effect on demand as yet.

The threat of recession in the US is impacting US titanium dioxide (TiO2) prices which will inevitably have an affect on European prices, market sources said.

Although European demand is consistent with the time of year, an economic slowdown in America could mean an abundance of material being directed towards Europe. Price discussions for the first quarter of 2008 took this into account and suppliers were unable to achieve their announced targets.

One monopropylene glycol/propylene oxide (MPG/PO) producer said it had not seen any general downturn in demand, noting that its January and February sales were in line with expectations.

A seasonal MPG buyer, however, noted that consumption had been slower during January and February, but that this was more likely to be due to the mild weather and regional holidays in some parts of Europe than fears about a global recession.

However, the source did not rule out this possibility, stating that general demand could be affected later in the quarter, depending on further developments in the US.

Enormous price volatility over the past seven months had been caused by fluctuations in supply more than any more deep-seated economic concerns, players in the ethylene glycol market said.

With contract and spot prices falling sharply, demand is currently continuing at a healthy level.

Talk of a slow-down later in the year has surfaced, especially on di-ethylene glycol (DEG), which is used in a variety of construction applications.

Bullish growth predictions in central Europe should support the market, barring a global economic collapse, said one producer.

Certain parts of Europe, such as the UK and Spain were showing signs of concern, added the source.

“We have seen in a dip in demand for formaldehyde since mid-December,” a methanol buyer said, and a further decrease was expected in March. The reasons given were macro economic factors in Germany, the US situation, and increased competition for furniture, laminates and plywoods from China. The strength of the euro does not help.

“We are all living on talk,” a styrene producer said. I don’t know if we will have a recession but I don’t think things will be that dramatic or that it will impact on the European styrene market,” he added.

Further down the chain in the styrene butadiene rubber (SBR), ethyl acetate and butyl acetate markets players were commenting that business is pretty good.

“We are not feeling any economic slowdown. At this stage we are still optimistic,” a UK lubricants blender said.

“We need to be very careful,” warned one European chemical industry CEO earlier this week. “Facts are better than mood,” he said.

“There is reasonable growth and we in Europe are much more experienced with modest growth rates. I don’t see an actual recession in Europe and I cannot see a major impact in Asia."

The view from the US is similar although it is clear that demand in key markets for chemicals has slowed considerably. Major players have talked of a slowdown but said they believe the US economy will not slip into recession.

Dow Chemical’s chief executive, Andrew Liveris, said at the World Economic Forum in Davos that Dow had experienced weaker demand since mid 2007 and that the situation had worsened dramatically in recent months.

Those conditions were likely to persist through the first half of 2008, he suggested, pushing growth lower for the year.

Adal Rafiq, Ed Cox, Caroline Howard, Peter Gerrard, Peter Salisbury, Shelley kerr, Sam Weatherlake, Heidi Finch, Julia Meehan and Fiona Bond contributed to this article

By: Nigel Davis
+44 20 8652 3214

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