FocusEurope chemical spot markets dry up on recession fears

19 August 2011 18:02  [Source: ICIS news]

LONDON (ICIS)--Chemical spot markets have ground to a halt in Europe as buyers, sellers and traders become increasingly worried that the continent could be headed for a second major recession in three years, market participants said on Friday.

Traditional buyers were not going into spot markets, while traders were holding back waiting for more direction. Spot sales, from upstream benzene and ethylene to downstream monoethylene glycol (MEG) and methyl ethyl ketone (MEK), were slim to none, sources said.

“Demand is very slow,” said one European methyl methacrylate (MMA) trader. “People are trying to destock and most are cautious, just waiting to see what will happen. There is lots of uncertainty because of the global financial instability and nobody wants to buy and be left with material if the demand isn’t there.”

Spot markets are generally slow during Europe’s summer months, but the recent lull in activity is particularly pronounced, several traders and brokers said.

"August demand has been very quiet because of the holidays,” said an acetone trader. “In fact, it's been the quietest August in the two and a half years or so since the [financial] crisis.”

The main concern for market participants is that the US and Europe could be headed into a second major recession with most markets still not recovered from the “bloodbath”, in the words of one broker, of 2008-2009.

Chemical industry analysts said on Thursday that a recession in developed western countries was becoming increasingly likely and that a serious downturn would be bad news for the sector.

A combination of negative economic data and ongoing fears over the fiscal stability of banks and governments in the EU have helped to create negative sentiment in markets across the globe, weighing stocks down.

Equity markets continued their stop-start decline of recent weeks on Friday, with the FTSE 100 index dropping below the psychological 5,000 point barrier in early trading in Europe and the Dow Jones Industrial Average, which tracks the biggest blue-chip firms in the US, falling 1% to 10,869.64 points before rebounding slightly to 10,945.10 points.

Oil prices remained volatile on Friday, with September contracts for WTI and October contracts for Brent both dropping in early trading. WTI was down $2/bbl at one stage, before reversing losses when US markets opened. Brent was up $1.40/bbl to $108.39/bbl by 16.55 GMT, with WTI trading at $82.43/bbl, up $0.90/bbl.

Most players in chemical markets were looking to September for direction, when demand traditionally picks up following the summer lull.

“We won’t know until September, which will decide the rest of the year,” said a maleic anhydride and phthalic anhydride buyer. “It’s going to depend on how the economic crisis develops”.

Many buyers and sellers expect September to be slow at best, as downstream producers test the waters before buying serious volumes of feedstocks.

It would be some time before anyone could judge markets, which have almost entirely been driven by sentiment in recent weeks, said one European chemical commodities broker.

“Sentiment is bad,” he said. “People are depressed and either do not want to know, or know, which direction to look in".

Many traders and producers with high inventories were hard-hit by the financial crisis of 2008-2009, as commodity prices plummeted from record highs and demand for end-products “fell off a cliff” in the words of one industry analyst.

Caroline Murray, Heidi Finch, Mark Victory, Kawai Wong, Helena Strathearn and Stephanie Wilson contributed to this story

($1 = €0.70)

By: Peter Salisbury
+44 20 8652 3214

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