The Rest Of 2011 A Write-Off



By John Richardson

SORRY to be yet again a bearer of bad news, but the awful China market continues to reflect a reality on the ground that remains in contrast to the views of chemicals analysts and top industry executives.

And as we discussed yesterday when we looked at just one aspect of the problems in the world’s most-important chemicals markets - the financial system - a swift recovery in 2012 looks highly unlikely.

Some chemicals analysts have cut their 2011-12 earnings forecasts, according to this article from Joe Chang – editor of our magazine, ICIS Chemical Business. The China market turned bearish in March this year and has remained weak ever since, barring a few short-lived flurries of restocking, but better late than never.

Temporary supply factors have kept some chemicals markets strong – for example, paraxylene (PX) and monoethylene glycol (MEG) – but the underlying fundamentals have been the same across every product: reduced availability of credit, inventory indigestion in some products such as polyethylene (PE), and also we heard last week polyvinyl chloride (PVC), because of the credit binge of 2009-2010; lack of confidence over the direction of crude; and general bearishness over the global economy.

But PX is now suffering from a margin squeeze downstream in purified terephthalic acid (PTA), the result of declining polyester demand. This is reflected in difficulties in settling the October Asian Contract Price, as my ICIS pricing Bohan Loh describes.

As in the European polyolefins markets, Asian producers appear to have given up on the rest of 2011. .

This is quite remarkable when you consider that we have more than two months of the year to go, and that there has been no post-October holiday rebound in China on restocking (markets often recover after major holidays as nobody want to book cargoes immediately before China closes down, in case shipments end up stuck at ports because customs officers are on leave).

In fact in polyolefins the reverse of a rebound occurred as prices declined even further for the week ending 14 October.

Polyethylene (PE) was down by $10-90//tonne in Southeast and Northeast Asia, depending on the grade (low density PE was the worst hit, suffering $70-90/tonne falls), according to ICIS pricing assessments.

Polypropylene (PP) was $10-60/tonne lower.

Click here for our price history since October 2010:

PEandPPprices14Oct2011.ppt

As we again said yesterday, realism is needed as budgets are prepared for 2012.



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