INSIGHT: Europe order books worse, production expectations weaken

15 April 2013 16:42  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS)--The most telling comments come at the end of the latest economic update from European chemical industry trade group Cefic.

“Underlying data point to a worsening in order-book levels. Data also point to worsened assessment of production expectations for the months ahead.”

Europe’s chemical producers, across the board, are struggling with weak regional European demand and the slowdown in Asia’s important growth markets. The Cefic comments relate to the latest chemicals business confidence data published by the European Commission.

The EU industry serves a large local market that is depressed by the sovereign debt crisis but also relies heavily on its export position. At the end of March there was little likelihood of either, taken together, providing the growth needed to underpin stronger chemicals activity.

The chemical industry in the EU runs a healthy trade surplus with markets in other parts for the world which last year rose 22% to €49.6bn ($65.3bn), pushed higher by a 23% increase in trade with non-EU Europe, a region that includes Russia and Turkey.

Net trade with the North American Free Trade Agreement (NAFTA) nations was up 19% and up 6% with Asia excluding Japan and China.

Chemicals production in the EU fell by 1.6% in January, the most recent month for which data are available, relative to January 2012, the fall illustrating how activity was stymied at the beginning of the year by the weak and uncertain global economic recovery.

Europe doesn’t have a great deal going for it in 2013 with the Commission suggesting in its new ‘winter forecast’, published this February, that EU and eurozone growth in 2013 will be minimal.

“The return to growth is set to be more gradual than earlier projected, in spite of the fact that financial market conditions in the EU have improved substantially since last summer,” the Commission said at the time.

“GDP is forecast to grow by 0.1% in the EU and to contract by 0.3% in the euro area this year.”

The Commission’s Spring forecast is due to be published on 3 May but there is little to suggest that much will have changed. The world’s financial markets may be climbing higher still but there are fears that this valuation bubble will burst.

The fundamentals are dreadful as International eChem chairman and ICIS blogger, Paul Hodges, said on Monday 15 April.

Chemical markets are locked in a “wait and see” mode, he suggested. Demand continues to be weak. Buyers are reluctant to push prices lower because they are worried about the value of their own inventory. 

“Producers long ago abandoned hopes of gaining market share, and are content to maintain the status quo,” he said.

Hodges made these points as he expressed concern about the oil price and suggested that it could drop closer towards historical norms. If that happens, the dynamics of chemical pricing will change.

Petrochemical producers, particularly, have been buoyed by their ability to maintain high prices against the backdrop of still weak demand because of the high oil price.

But naphtha prices were down 6% last week and have fallen by 14% in a month, from a record high, highlighting, Hodges said, potential weakness ahead.

Petrochemical prices, particularly, have not been weak in recent months. EU petrochemical prices were 5.5% higher year on year in January 2013. By comparison, January 2013  consumer chemical prices were up 1.4%. The EU chemicals price growth figure generally was 2.2%.

The disconnection with the output figures is clear. The EU petrochemicals production index was down 3.6% year on year in January and the polymers index was down 1.3%. Further downstream, specialty chemicals output contracted by just 0.6% while consumer chemicals output increased by almost 1%.

Higher prices helped to keep chemicals sales values relatively stable in 2012. The relatively high price environment meant they were 5.4% higher than the pre-crisis peak reached in 2008. EU chemicals production in the fourth quarter of 2012 was 8.7% lower than in the first quarter of 2008.

EU chemicals production growth January 2013

($1 = €0.76)

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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