18 August 2011 18:20 [Source: ICIS news]
LONDON (ICIS)--A raft of negative data suggests that US and European economies are teetering on the brink of recession, spelling trouble for the chemical sector, senior industry and economic analysts said on Thursday.
Their comments followed a report from ?xml:namespace>
In the report, Morgan Stanley analysts said that they were cutting their global growth forecasts for 2011 on the back of disappointing economic data and “policy errors in the
Morgan Stanley now believes that global GDP will increase by 3.9% in 2011, rather than the 4.2% it had previously estimated, with 80% of that growth coming from emerging markets.
“Our revised forecasts show the
The report came after a series of gloomy data releases from the
On Thursday the statistical office of the EU, Eurostat, released a report that showed construction output in the 17-member eurozone shrank by 11.3% on an annualised basis in June, while output contracted by 8.1% in the 27-member EU. Eurozone and EU construction was also down month on month, Eurostat said, with June output down by 1.8% and 1.3% respectively from May.
German GDP data released this week showed that the EU’s biggest economy had only grown by 0.1% in the second quarter of 2011. The second-biggest economy,
Continued slow growth or outright recession will be bad news for chemicals producers, said Alan Eastwood, economic adviser to the UK-headquartered Chemical Industry Association (CIA).
“Construction in particular is one of the biggest downstream industries for chemicals,” he said. “This latest round of economic instability will mean that the banks will be less willing to lend money, and the construction industry needs money.”
Meanwhile, he said, consumers are likely to cut back their spending as high energy prices keep the cost of living high while economic output stagnates.
“While the West has been in stagnation, if not recession, the rest of the world has been surging ahead,” he said. “In previous recessions, while you were recovering you had low energy prices because the West drove demand for energy. But that hasn’t happened this time.”
The US benchmark oil contract, WTI, was trading at $83.31/bbl for October on Thursday afternoon, while in Europe October Brent was trading at $107.62/bbl. Prices fell on fears over European and US fiscal and economic stability during the day, but were still at historical highs.
“We have never had a period where oil prices have been at this level without a major recession,” said Paul Hodges, chairman of
Petrochemicals producers are better placed to cope with another recession or credit crisis, as they have largely restructured and paid down debt and decreased their debt-to-equity ratios, Eastwood said. “The corporates are in a much better position,” he added.
Meanwhile, chemicals producers, buyers and sellers all report that they are operating on low-to-balanced stocks in order to avoid a sharp drop in demand and avoid the issues they faced in 2008–2009.
“We don't have high inventories,” a polyethylene terephthalate (PET) producer said, while acknowledging that August supply and demand were balanced compared with tighter supply in July.
“There are not a lot of orders from customers,” said a PET buyer. “PTA [purified terephthalic acid] is very long at the moment.”
Caroline Murray contributed to this story
For more on PET and PTA visit ICIS chemical intelligence
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