06 April 2009 17:55 [Source: ICIS news]
By Nigel Davis
LONDON (ICIS news)--It’s been called the “throwaway quarter” by financial commentators. Watchers of the world’s physical chemicals markets probably feel the same.
Chemicals demand generally has remained depressed so far this year, although there has been some sense of a rebound among the more stable consumer-oriented products. If operating rates are anything to go by, consumer packaging demand has found something of a floor helping to underpin growth for certain types of polyethylene (PP).
The fourth quarter of 2008 was ravaged by destocking and it is that now which is beginning to unwind. Evidence of robust demand growth, however, is seriously lacking.
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It is restocking, however, that will underpin the recovery and provide the base from which chemicals demand can grow again.
The outpouring of bleak economic data continues to weigh heavily but sentiment has improved and the world’s financial markets are on a mini bull run. Chemicals stock prices have risen at a relatively stronger rate even though the sector outlook is poor, to say the least.
Businesses tied to automobiles, construction and consumer electronics might be expected to continue to be severely affected by the global downturn.
And given the lack of any real signs of a turnaround in any of these sectors, the prospects for many chemicals firms remains tough. Indeed, it is difficult to determine whether the chemicals markets have yet hit bottom.
European cracker margins improved slightly last week but mainly due to a high benzene contract value. The increase in that contract price was driven to some extent by the improved market sentiment in
Higher propylene (C3) prices in Asia have opened a welcome arbitrage with
And polypropylene (PP) exports to
The general market weakness is particularly apparent in ethylene and PE, where more buoyant
PE exports have not picked up in the same way as PP, but producers have sought price increases for low density polyethylene (LDPE) and linear low density material (LLDPE). Given the depressed demand situation, it is by no means certain that these price increases will be pushed through.
In the chemicals markets, it is clear that higher prices in Asia will have to be seen for some time before there is much in the way of a direct impact in
The feeling out of Asia is that prices generally are unsustainable – that stimulus package-related credit availability in
The widespread feeling is that chemicals producers continue to mark time while markets either approach the bottom or bounce along the floor. The
By the same token, optimism in the world’s financial markets is widely expected to be fleeting until some stronger economic data are available to underpin confidence.
As far as chemicals stocks are concerned, the recent rally once again could also prove to be a false dawn ahead of the coming wave of first-quarter financial results, which start in the
The first quarter of 2008 will have proved to be particularly bad for chemicals players and probably the worst quarter in many years. Second-quarter prospects continue to remain uncertain.
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