INSIGHT: Global chemicals production growth stalls in March

30 April 2012 17:04  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS)--Global capacity utilisation in chemicals slipped by 0.2 percentage points in March to 86.8%, against a long-term average of 91.2%, according to data from the American Chemistry Council (ACC).

Operating rates have remained low as demand growth has stumbled in many parts of the world following the sharp slowdown at the end of 2011. The US has been growing away from that slump and chemical majors have reported momentum in various businesses as demand has picked up. The raw data, however, provide a snapshot view of how difficult business has become.

The trade group’s data show global chemicals production growth slowing from December to March, with output down sharply in some of key chemical manufacturing locations.

The numbers also suggest that it may prove difficult to hold on to the growth gained earlier in the year as inventories built following the fourth quarter sell-off.

“The Global Chemical Production Regional Index (Global CPRI) was essentially flat in March after three consecutive monthly gains,” the ACC said in its latest weekly economic trends report.

Chemicals production
volume change
(year on year %, 3MMA)
Source - ACC
 World total  2.3  2.0   1.9  1.5 
 North America  0.6  0.5  1.1   1.4 
 US  0.3   0.3   1.1   1.3 
 Latin America -0.7   0.1   1.0   1.3 
 Brazil -3.8  -1.7   1.1   2.5 
 Western Europe -1.1  -1.6  -1.9  -2.6 
 France  2.1   1.0  -0.4  -2.1 
 Germany -2.6  -3.3  -4.1  -5.0 
 Italy -3.5   -3.3  -4.8  -6.7 
 UK -3.9  -3.1  -2.3  -2.5 
 Belgium -0.7  -2.9  -3.6  -6.1 
 Netherlands -5.4  -3.7  -1.7   0.2 
 Africa & Middle East  5.2   5.1   4.8   3.6 
 Asia-Pacific  5.8   5.1   4.8   4.4 
 Japan  2.1   0.4  -1.5  -2.0 
 Asia-Pacific excluding Japan  3.8   3.2   3.2   2.6 
 China  6.5   6.1   6.1   5.7 
 South Korea  1.4   1.0   1.6   2.4 
 Singapore -4.3  -6.3  -7.8 -8.9
 Taiwan -7.6  -8.9  -9.0  -9.4 
“The Global CPRI was up only 1.5% Y/Y on a three-month moving average (3MMA) basis and stood at 112.2% of its average 2007 levels. Most leading indicators of global industrial activity signal a tentative recovery and perhaps the worst is over,” it added.

This then is the good news, although still weak US economic growth, the eurozone crisis and slower growth in China, continue to give cause for concern.

Even on a 3MMA basis, chemicals production was down further, year on year, in March in Taiwan (-9.4%) and Singapore (-8.9%). China’s chemical output grew by 5.7% in March when measured in the same way, 0.4 percentage points lower than in February and 0.8 points lower than in December.

For western Europe, the 3MMA production volume decline in March was 2.6%, from a drop of 1.9% in February. Belgium’s output in March was down by 6.1%, Italy’s output down by 6.7% and Germany’s down by 5.0%.

US output was showing some signs of life, with the 3MMA for March 0.2 points up from February at 1.3%. Output of bulk petrochemicals, intermediates, synthetic rubber, man-made fibres and inorganics were climbing, the ACC said, but plastics were weak.

This mixed picture has become apparent as producers have reported first-quarter financial results and commented on business in April.

Polymers profits have been under pressure in many parts of the world from higher olefins feedstock costs and relatively subdued demand growth.

LyondellBasell, for instance, on Monday said its polyolefin sales volumes in North America were slightly higher than in the fourth quarter of 2011. Polyethylene (PE) margins had been squeezed, however, by ethylene prices higher than in the first quarter of 2011.

Margins in its Olefins & Polyolefins – Europe, Asia, International (O&P – EAI) segment were weaker.

Margin pressure and a weak demand environment are a bad combination and the ACC’s latest macroeconomic assessment does not make particularly pleasant reading.

The most recent US GDP report was, for example, “weaker than expected”, the ACC said.

Consumer spending accounted for most of the overall gain in GDP, while in manufacturing, orders and investment were weaker. “These indicators all point to slower growth [in March] than in previous months.”

Given the state of play in the eurozone crisis, it is not surprising that European consumer confidence has slipped. Japanese industrial production has failed to meet expectations.

At the national and regional level, chemicals output growth in Latin America slipped in March and was up only 1.3% year on year. The ACC’s economists say that chemicals output in western Europe appeared to be stabilising during March. The trend in Africa and the Middle East has been positive.

Asia has presented a mixed picture, however, with activity declining over the past six months. “After declining September through November, production in China appears to be stabilising,” the US trade group said.

Products upstream have led growth out of the 2008–2009 crash, but their growth has slowed. Production volumes of petrochemicals and other organic chemicals have been lower since December 2011 compared with a year earlier. Plastics production volumes have been flat over the same period.

Most producers are holding out for a recovery in the second half of the year, particularly on a comparable half year-to-half year basis, which will provide contrast with a weak second half of 2011. Chemicals output and profitability have built so far this year on hopes of recovery but, globally, they are weighed in the balance in the second quarter.

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By: Nigel Davis
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