FocusSlowdown hampers exports despite euro fall

13 August 2008 16:57  [Source: ICIS news]

By Peter Salisbury

 

LONDON (ICIS news)--With the euro at a six-month low against the US dollar, Europe’s petrochemicals exporters should reap the rewards but the business and wider industry have larger concerns like the global economic slowdown, said analysts and industry insiders on Wednesday.

 

“In the short run, the effect on the trade balance will be positive. The main effect on eurozone, though, will be demand and I don’t believe that the current scenario is very positive. European exporters will suffer the most from weak global demand,” said Commerzbank analyst Ulrich Leuchtmann.

 

A wider global economic malaise would likely mitigate any upturn in exports or imports, he added.

 

By Monday, the euro had fallen to a six-month low against the dollar, valued at €1 = $1.4814.

 

This could stimulate exports from Europe but the reality was both more complex and more problematic from a euro cost base perspective, said currency analysts, economists, and petrochemical market participants.

 

The extent of the euro’s losses against US currencies would not extend, said Leuchtmann, adding he expected to see a reverse adjustment on more negative economic data from the US.

 

The downturn in euro valuation had, he said, nevertheless been “one of the swiftest downwards movements we have seen since the inception of the euro/dollar exchange”.

 

Credit Suisse’s Marcus Hettinger, a global currency exchange analyst, pointed to the concerns raised when the euro found a record high against the dollar earlier in the year.

 

“On the way up euro dollar people were saying that exporters would feel the pinch,” he said. “The deterioration was not as massive as suggested. Trade-related developments were not as crucial as we had thought.” 

 

The central concern for eurozone producers was that of global demand, which was weakening, said Hettinger.

Many producers, consumers and traders in Europe were agreed on this. 

The key Asian market was “horrendous” as benzene and styrene values in the region lost $200/tonne (€135/tonne) plus inside a month on supply length and demand weakness, a scenario also being played out in the US and Europe, said one Europe-based trader. 

The major impact of the volte face in currency differentials was, in fact, felt in markets where players traded in dollars on a euro cost base.

 

“The main problem in Europe right now is the exchange rate,” said a seller of Russian base oils in Europe.

 

“The European refineries are keeping their prices at around €1,000/tonne FCA (free carrier). The best offers we heard [for Russian material] last week were $1,400/tonne CIF (cost, insurance and freight) NWE (northwest Europe). We didn’t do this business and we are glad, because the dollar gained strength and we would not have been able to sell at a profit [in the European market],” added the seller.  

 

One German fertilizer importer/distributor said that its compound fertilizer prices from Russia had risen by around €30/tonne in the last four weeks, again mostly on the back of the change in exchange rates.

 

In northwest Europe, the appreciation of the dollar versus the euro had also significantly diminished demand for North African diammonium phosphate (DAP) fertilizer, which was on offer at $1,230/tonne FOB (free on board) and which would have equated to around €802/tonne FOB at Friday’s exchange rate of €1 = $1.5323.

 

With the dollar appreciating to €0.67, this now equates to €825/tonne FOB. A major European trader was reported to have increased its Ghent DAP price by €25/tonne to €855/tonne FCA ex-store to compensate, with little buying interest noted at this level.

 

However, there were some dissenting voices, feeling European exporters could benefit from the dollar’s rise.

 

Many players in the melamine market commented on the rising dollar value, with one trader saying that it would have a definite effect on the European market, possibly leaving local producers in a stronger position to export in the future.

 

A styrene trader, meanwhile, said that a weaker euro could aid the long market by holding off imports. 

 

The value of the single European currency versus the US dollar fell sharply last Thursday after comments made by chairman of the European Central Bank (ECB) Jean-Claude Trichet.

 

“The main news was that Trichet generated the opinion that he was surprised by the weak economy in Europe. On the other hand, comments from the US caused the view that there might be light at the end of the tunnel for the US economy,” said Leuchtmann.

 

($1 = €0.67)

 

Shelley Kerr, Mike Nash, Carl Roache and Madelon Ten Cate contributed to this article

 

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By: Peter Salisbury
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