Global demand concerns drag down Asia petchem, crude prices

04 June 2012 07:29  [Source: ICIS news]

By Pearl Bantillo

SINGAPORE (ICIS)--Worries about softening global demand escalated following poor sets of data on the world’s biggest economies, triggering a rout in the Asian commodities and equities markets on Monday.

Crude futures declined by more than $1/bbl (€0.81/bbl) on Monday, extending the heavy losses last week, with data on US jobs and on China’s manufacturing sector on 1 June painting a bleaker outlook on the global economy.

At 13:51 Singapore time (05:51 GMT), US crude for July delivery were down by $1.61/bbl at $81.62/bbl, while Brent crude had fallen by $1.58/bbl to $96.85/bbl.

Unemployment rate in the US, the world’s biggest economy, increased to 8.2% in May, with job creation at 69,000 for the month being the smallest recorded in a year, based on official data.

China, on the other hand, continued to show signs of slowing down. Its May Purchasing Managers’ Index (PMI), a barometer of activities in the country’s manufacturing sectors, fell by 2.9 percentage points to 50.4%, just barely above the 50% threshold that indicates expansion.

China is the second-biggest economy in the world and is a key market for Asian petrochemicals.

Crude prices weighed on the prices of key petrochemical products in the region, with benzene hitting a six-month low and toluene declining to its lowest in 16 months on Monday.

Benzene prices fell by $70-75/tonne in the morning to $980-990/tonne at midday, while toluene prices declined by $55-60/tonne to $965-980/tonne.

Fears about the eurozone breaking up amid the ongoing debt crisis in the region are also plaguing the commodities in equities markets.

Shares of petrochemical companies in Asia were being battered on Monday, tracking falls in regional bourses and the sell-off in Wall Street last Friday.

Japan’s Mitsui Chemicals slumped by 5.75%, Mitsubishi Chemical fell by 4.76% and Asahi Kasei dipped by 0.73%, with the Nikkei 225 index slipping by 171.34 points or 2.03% to 8,268.76.

In South Korea, Hanwha Chemical fell by 4.43%, LG Chem slumped by 4.33% and Kumho Petrochemical shed 6.22%, with the KOSPI composite index falling by 51.51 points or 2.81% to 1,783.00.

In Hong Kong, the Hang Seng index was 415.82 points lower, or down by 2.24% at 18,142.52.

The Shanghai Composite Index in China fell by a further 48.16 points or 2.03% to 2,325.28.

“It is not good that both the US and [the] eurozone are facing fiscal and recession challenges. Throw in a slowing China, it is hard for risk aversion to overcome the hope of monetary stimulus at this stage,” DBS Bank Research said in a note to clients.

“Of course, [the] eurozone still needs to provide a game plan on how to save the euro,” it said.

The Dow Jones industrial average was at its lowest level since December 2011, according to DBS Bank Research, adding that the “larger worry is the negative spillover from the eurozone sovereign debt crisis on the US economy”.

Market players will be eagerly awaiting the testimony of US Federal Reserve chairman Ben Bernanke before the US Joint Economic Committee on 7 June about an indication for a possible third quantitative easing policy, in which the central bank injects the financial system with liquidity to boost the ailing US economy.

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

($1 = €0.81)

By: Pearl Bantillo
+65 6780 4359

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