INSIGHT: Slow growth hobbles industry globally

04 September 2012 13:59  [Source: ICIS news]

(recasts, clarifies date range in 15th paragraph)

By Nigel Davis

LONDON (ICIS)--Higher monthly olefins contract prices in Europe have intensified downstream thermopolymer price discussions.

Converters have had a tough time of it this year. Demand has been under pressure, while raw material price volatility has been called “unprecedented”. The thorny question of inventory is occupying minds now, as the EU manufacturing industry and embattled retail sector struggle to grow.

UK-headquartered polyethylene (PE) major BPI said earlier this year that industrial and construction sector demand remained subdued, and that volume demand from the sectors continued to weaken. Retail and service sector demand was flat, with volume gains in some cases offset by a trend towards thinner films. Margins were also reportedly under pressure.

The company signalled at the end of August in its interim 2012 financial statement that nothing had changed on the volume front, although polymer prices for the reporting period had eased from April.

And as to the future, BPI chairman Cameron McLatchie said: “As always, the second half is difficult to call at this stage, as in this manufacturing-cum-service industry the order visibility is never very long-term.”

Currently converter stocks are not as low as they were, as ICIS reported at the end of last week – but converters still need to buy.

So, the sharp PE and polypropylene (PP) price increases being sought by polymer producers will be testing.

It all comes down to demand – and whether converters have to buy before October. If they hold off, there is the likelihood of polymer prices falling yet again.

PE and PP prices had dropped, but moved back up above the levels seen at the end of June. A substantial increase for September is expected on the back of higher September ethylene and propylene contract prices.

Cracker margins have been low – so the olefins increases were widely expected – and integrated producers have been keen to raise margins on polymers.

This balancing and re-balancing has typified polymer markets in 2012, and reflected much wider market uncertainty.

Netherlands-based producer LyondellBasell said last month, for instance, that the drop in polymer volumes from its Europe, Asia, International Olefins & Polyolefins segment in the second quarter was significant. PE sales volumes were down by 14% from the first quarter of 2012. PP volumes were down by 13%.

Numbers such as these are not insignificant, and there are no signs of a recovery.

The malaise is not confined to Europe – PE demand in China from January to June this year was up by just 1.7% year on year, the latest data show, and the comparison was flat compared with the same period in 2010.

This demand growth stall – which is in sharp contrast with the impetus-driven expansion between 2008 and 2010 – signals deep macroeconomic problems, and difficult times ahead that will have a global impact.

Polymer producers and consumers are caught in macroeconomic maelstrom that shows few signs of blowing out.

“Weakening global prospects have increased calls for additional stimulus from central banks around the globe,” economists at the American Chemistry Council (ACC) noted on Friday, 31 August, adding: “Chinese manufacturing continued to slow, with the latest purchasing managers’ index dipping to a nine-month low. Europe also continues to struggle.”

The ACC’s third monthly chemical activity barometer report “continues to signal a slow US economy”.

Read Paul Hodges’ Chemicals and the Economy blog
Bookmark John Richardson and Malini Hariharan’s Asian Chemical Connections blog


By: Nigel Davis
+44 20 8652 3214

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