From our own correspondent: The party's over for EPCA

Now the real gambles begin

03 October 2008 16:18  [Source: ICB]

Smiles at EPCA meeting cannot disguise woes

Day two of this year's European Petrochemical Association meeting (EPCA) in Monte Carlo, Monaco, and the ICIS team is sitting on a hotel terrace overlooking the sea. Sushi is served as a live band plays lulling bossa nova. Glasses clink and conversation flows between tables of the Kolmar brunch.

To the casual observer, it appears to be business as usual. Another year, another free lunch. But, as with much of the 2008 meeting, there is an underlying tension to the customary chatter.

Also at the table is a group of Swiss bankers who explain that credit for commodity trading is being impacted on two fronts. It is not only difficult to approve finance for deals the issue now is finding a partner who will accept the reliability of the credit offered by the banks.

Cut to the Vopak party on Monday evening, where good cheer flows almost as swiftly as the champagne. A trader hurries over to ask what has happened in the benzene spot market. Crude oil has dropped into the mid-$90s/bbl. The Dutch-Belgian bank Fortis was forced to seek government assistance earlier in the day and a significant proportion of the UK lender Bradford and Bingley has been bought by the British government.

On Tuesday, spot markets are tumbling, with parts of the aromatics portfolio trading $100/tonne below the previous afternoon.

Words like "recession" and "depression" pepper speech. Estimates of the duration of the downcycle range from six months to five years. Contacts who had once made definitive statements on the future of their markets now return a glum "I don't know" as uncertainty grows over demand, financing, and energy costs.

A trader tells me that the benzene market is increasingly illiquid because positions are being closed - players are unwilling to speculate in the long term. Producers and consumers say material is being bought on a "hand to mouth" basis, with buyers taking the absolute minimum of volumes wherever possible.

At a weary final meeting in the Grimaldi Forum, my contacts say they hope their next appointment will be canceled - they're worn out by the negativity on general display.

Perhaps ironically, rumor around town is that the EPCA circus will not return to Monte Carlo. In a year's time, the roulette wheels and blackjack tables will stand empty, with delegates arriving at a less ostentatious destination, perhaps Vienna or Berlin. The gambling is over, and it is time to hunker down.

By: Peter Salisbury
+44 20 8652 3214

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