Commentary: Watch the Chemicals Volume Proxy leading indicator for market turns

07 June 2013 14:48  [Source: ICB]

Buyers and sellers of chemicals analyse a number of data sets, along with news developments, forecasts and sentiment ­indicators, to get a sense of where the market is headed. Leading indicators such as the monthly ISM Purchasing Managers' Index (PMI) can offer valuable insight into future economic activity.

But for the chemical sector, there is another unique leading indicator for market direction, based on weekly changes in spot chemical prices as assessed by ICIS.

The Chemicals Volume Proxy, developed by Paul Satchell, UK-based analyst with global investment bank Canaccord Genuity is - as the name suggests - intended to gauge volumes, and thus demand, through changes in spot prices.

The basic premise is that sudden changes in demand will have a more pronounced impact on the spot market than on the contract market, where most business takes place. Greater demand leads to higher spot prices, while lower demand leads to lower spot prices.

There is no perfect lead indicator, and any such index must be accompanied by market analysis to provide value. But this one has called major turns in the market in the past, and is now signalling another one to come.

By: Joseph Chang
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