08 September 2009 07:02 [Source: ICIS news]
SINGAPORE (ICIS news)--Economic numbers tell of a global recovery story, but rising unemployment and shrinking purchasing power have kept consumers on the sidelines, making it difficult for petrochemicals demand to significantly pick up ahead of the Christmas season, analysts said on Tuesday.
The degree of uncertainty on the pace of economic turnaround remains high about a year after the unprecedented collapse in demand in late 2008, analysts said.
“We’re not seeing that spending power return yet in terms of day to day. That for me will determine whether this recession has come to an end,” said Paul Hulme, president of the global textile effects division at
While petrochemical prices managed to scale back up this year, they are still a long way off from hitting pre-crisis levels given soft demand.
“I think it is very hard to say how strong demand will be in the fourth quarter. It is unlikely to be as bad as last year. But the market surprises,” said Andrew Wong, a petrochemical industry analyst at global credit ratings firm Standard and Poor’s.
Thanks to huge government spending, most countries in
Manufacturing activities peak in the months of July to September in
The current weak state of the global economy suggested that strong rebound in demand for exports was unlikely this year as consumers continued to tighten their belts, economists said.
It may be that it is in the fourth quarter than in any time of this year that exports weakness would hurt
Traders said that Chinese exports to the
Some factories reported orders at 50-70% of previous years while smaller ones saw business shrink more than 50%, said a trader in
“Why are the orders not coming in at the moment? I would think that buyers are still holding on to their money, waiting for a further fall in prices,” said Im Jee Soo, a Seoul-based analyst at Good Morning Shinshan Securities.
In some sectors like polyester that used to be buoyant, weakness recently set in and pulled down prices of fibre intermediates such as purified terephthalic acid (PTA), paraxylene (PX) and monoethylene glycol (MEG).
Huntsman’s Hulme and S&P’s Wong warned against another sharp decline in global economic output once the effects of the global stimulus packages wear off if consumer confidence failed to return.
“Demand for these [petrochemical] products is closely linked to GDP growth. A return of GDP growth in the region and the pace of that is still quite uncertain,” Wong said.
Petrochemical trading activities in China were muted when the central bank started to rein in on lending in the second half of the year, affording companies and traders only limited spending power, said Im from Good Morning Shinshan.
A clearer picture on demand would emerge in the middle of the month, she said.
It did not help that more capacities would come on stream towards the end of the year when demand was very soft, hence the expectations of further price depression, analysts said.
“Certainly volumes will take a while to come back. There is an acknowledgement that this year is going to be a tough year,” said S&P’s Wong.
“Next year will be soft and perhaps in 2011, it will be more of a stronger operating environment,” he added.
Given all that transpired since the fourth quarter of last year and the very gradual upturn, it looks like this is not going to be a very merry Christmas for all.
With additional reporting from Terence Teo and Clive Ong
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