INSIGHT: Year-end nervousness as output just holds steady

03 December 2012 17:37  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS)--Chemical producers, particularly nervous in the run-up to the calendar year end, are fixated on operating rates, cash flow and costs.

Demand tends to drop off in December as customers slow down but, this year, order books are much weaker than usual. The glow on the horizon most times is the approaching New Year and a bounce back for business in January but in 2012 the glow is not so welcoming.

There is still a great deal of uncertainty worldwide over potential demand growth in 2013 with each of the major chemical producing and consuming regions facing challenges. Bad news continues to be leapt on as indicative of the global economic malaise while the very few positive signals tend to be brushed aside.

The air of extreme nervousness means that producers and consumers are highly sensitive to potential market-moving events such as unexpected shutdowns or outages. It is the year end, so payment terms have understandably shrunk - in Europe to 30 days, industry sources say, with, in some cases, cash being demanded up front. Few are taking chances.

The latest industry data underscore the general mood. Capacity utilisation across the sector globally declined in October for the third month in a row, the American Chemistry Council (ACC) said late last week. It was 86.1% for the month, down from 86.9% a year earlier and well below the long-term average of 91.2%.

The council’s global chemical production regional index did not grow in October having shown gains for the prior 10 months. Weakness in Europe and Asia Pacific offset gains in North America, Latin America and Africa & the Middle East.

The dry production data show that while sector output from the 2008-09 crash the pace of output growth began to slow from the middle of 2011. Overall production in the US rose in October, the ACC says, with gains in organic chemicals, plastics and some other industry segments offset by lower production of pesticides and fertilizers, man-made fibres, synthetic rubber, industrial gases and pharmaceuticals.

Production in North America in October was down 0.1% with weaker output from Canada and stronger output from Mexico.

It is western Europe, as the table illustrates, that has been having the toughest time. Economic weakness and the eurozone financial crisis have crimped markets leaving chemicals production out in western Europe down 0.8% in October. That overall rather modest decline, however, masks continued sharp output falls in the UK, Belgium, Spain and Sweden.

The production volumes gains or losses are measured on a three-month moving average basis to allow for possible discrepancies in the data.

Production growth was soft in Asia Pacific towards the end of 2011 and in the early part of 2012 so current comparisons look good. They are, nevertheless, significant in important nations for chemicals production and consumption like China, India and South Korea. And ACC economists make the point that many of the countries in Asia pacific are early in the global manufacturing supply chain.

On a segment basis, the data show that some gains have been being made against weak petrochemicals output in October 2012 but that plastics output remains flat at best.

Rubber and fibres output is expanding relatively strongly from the difficult year-earlier period. “Year-earlier comparisons for petrochemicals and organic chemicals were negative in the 4th and 1st quarters [2011 and 2012] but are now positive,” the ACC says.

Chemicals production

Production volumes
(% change y/y, 3MMA)

July
2012

August
2012

Sept
2012

Oct
2012

World total

3.1

3.0

3.0

3.2

North America

0.0

-0.2

-0.2

-0.1

US

0.0

-0.1

-0.2

-0.2

Latin America

-0.4

0.3

1.6

1.8

Brazil

1.6

2.2

4.1

4.3

Western Europe

-1.7

-1.4

-1.0

-0.8

France

3.5

2.5

2.0

2.5

Germany

-5.3

-3.9

-2.4

-0.9

Italy

-3.7

-3.3

-2.3

-0.8

UK

-8.2

-8.2

-7.1

-6.3

Belgium

-12.1

-9.4

-5.5

-3.8

Eire

4.5

4.8

2.6

-0.8

Netherlands

5.9

6.2

5.5

6.7

Spain

2.1

0.2

-3.0

-3.3

Central & E Europe

-4.8

-5.0

-5.2

-5.5

Russia

-11.1

-11.7

-12.5

-12.7

Africa & Middle East

3.9

5.0

6.1

6.3

Asia-Pacific

8.4

7.8

7.8

8.0

Japan

0.9

-0.7

-1.5

-1.1

A-P excl Japan

6.7

6.7

7.2

7.6

China

9.9

9.7

9.7

9.8

India

0.1

3.2

5.2

6.3

S Korea

4.6

4.3

5.6

5.8

Singapore

-3.6

-2.9

-1.7

0.5

Taiwan

-2.6

-2.1

-1.0

0.5

Source: America Chemistry Council

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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