Think tank: Chemical production curbed on year-end jitters

07 December 2012 10:31  [Source: ICB]

Chemical producers, 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 this year, 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 in the sector globally declined in October for the third month in a row, the American Chemistry Council (ACC) said the week ended 30 November.

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

The production data show that the pace of output growth began to slow from the middle of 2011.

Overall production in the US rose in October with gains in organic chemicals and plastics.

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

Western Europe has been having the toughest time. Economic weakness and the eurozone financial crisis have crimped markets, leaving chemical production in western Europe down by 0.8% in October.

That 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.

Production growth was soft in Asia Pacific towards the end of 2011 and in the early part of 2012 so current comparisons appear favourable.

By: Nigel Davis
+44 20 8652 3214

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