Source of picture: anirudhsethireport.com
By John Richardson
WE reported earlier this week that cautious confidence is being expressed that the worst might be over in polyolefin markets with prices having reached the bottom.
"The market seems to be improving and my view there is no much room for further price corrections from a cost standpoint despite the oversupply," said a source with a major global producer in response to earlier our story about the 30% increase in Chinese production in H1.
"If demand recovers or even holds, prices should stabilise at slightly higher levels to where they are today,"
I hate to be pessimistic yet again, though, but sadly I think that any recovery could be a dead-count bounce - an edging-up by producers of prices $10-20/tonne every week or so because of a moderate re-stocking and the cost factor mentioned above.
This is barring major operating-rate cuts - or even some quick decisions on further permanent plant closures which we also talked about earlier this week.
"We haven't seen the worst of things yet and without some permanent shutdowns by higher-cost Japanese and other producers, we will remain in a down cycle throughout 2011 with no recovery until the following year," a senior industry source told the blog.
His view is that the moderate price-recovery currently being talked-up might actually be bad news as it will delay painful decisions on scrapping capacity.
"What we actually need are price reductions of around $50-100/tonne a month rather than any increases," he added.
On the demand, side, as we've said before, China's economy is clearly slowing and problems in the West are mounting - meaning that a rebalancing is needed, even if in the longer-term the outlook for Asia remains amazingly good (the tantalising prospect of shortages beyond 2012 might well put paid to the rationalisation our industry source would like to see, forcing everyone to muddle through).
A very interesting, well-written and extremely thorough article from my colleague Mark Victory at ICIS news earlier this week said that summer demand in Europe across a range of chemicals and polymers was stronger than had been expected.
Here we are broadening the perspective out. The blog doesn't have the resources to, on the whole, cover anything more than the olefins and polyolefins markets, but we from time ot time we are able to point out parallels with what's happening elsewhere in the chemicals industry.
Mark's article points out, though, that factors other than fundamentally strong demand can be used to explain this brighter picture.
I can't also help feeling that there is a lag-effect here - e.g. European sellers of chemicals and polymers into the auto market have yet to be hit by the slowdown in demand from China.
He wrote: "The 'V'-shaped recovery in Asia Pacific has stalled, or "dissipated" in the ACC's words. European output growth has continued to show strong gains but there has been individual national output weakness.
"Production in the UK, for instance, has dropped for the past three months compared with the year-ago periods. UK chemicals output is slewed considerably towards pharmaceuticals, a segment facing tough times, but the country's more basic chemicals output has not recovered strongly.
"The situation across Western Europe is generally different, with a strong rebound apparent from the sharp fall in output in 2008-2009 in countries such as Germany and France.
The pace of growth, however, eased off slightly in June and prospects for the second half do not look good."