By John Richardson
LUNCH with a chemicals analyst yesterday, during the blog's latest trip to Singapore, gave an intriguing glimpse into the world of those who invest in the chemicals industry.
"The Morgan Stanely "Supercycle" report (which the blog wrote about late last year) seems to be on every fund managers desks," he said.
"These are long-only funds in that while they might trim their positions if markets turn bearish, they remain committed to petrochemicals for several years and therefore believe the Morgan Stanley argument about supply becoming very tight beyond 2012."
The blog believes that the famous report's argument - that Asia alone can carry the global chemicals industry to a new sunny upland of sustained profitability - doesn't stand up. The US and Europe remain too important for consumption.
But the accepted wisdom among these fund managers seems to be that nothing can go wrong, the analyst added.
All the risks we highlighted on Monday - and those further detailed by Paul Hodges in his blog posting on that same day - point to grounds for serious concern.
"What is interesting is that the confidence in petrochemicals has been so great that the sector's share prices are outperforming overall Asian indices so far this year," the analyst continued (data to support his argument will follow a little later).
Now what if the short-term investors, those in it for a quick gain, have helped pump-up chemicals share prices by spinning a highly calculated, misleading story about the health of the industry? They may suddenly exit petrochemicals, and lots of other investments, when the punch bowl is finally taken away from the party - leaving "long only" investors severely burnt.
