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EU Summit Solves Nothing

Business, Company Strategy, Economics, Europe, Polyolefins
By John Richardson on 02-Jul-2012

 

EuropeLDPE2July2012.jpg

European LDPE spot prices at their lowest level since January 2010 

 

By John Richardson

THE EU Summit results might have bought a little more time, but as John Authers points out in this article in the Financial Times, “the result was the latest politically driven bounce for risk markets (including crude-oil prices and equities), continuing a pattern that has persisted for 30 months, since Greece’s crisis erupted in early 2010.”

In other words, initial euphoria, creating an opportunity to make quick profits from a commodity and equity markets bounce, will give way to sober reflection and the realisation that the summit has, essentially, solved nothing.

At the core of the problem, adds Authers is that “moves to pool borrowing and banking regulation among the Eurozone members, which would solve the crisis, continue to require the kind of ceding of sovereignty that could take years to negotiate, and that electorates may not accept.”

He further points out that government finances continue to be weakened by austerity policies and Greece remains at risk of bankruptcy.

As the dust settles on the summit, it will be interesting to observe whether the European chemicals industry trade group, Cefic, sincerely feels that significant progress has been made.

In a strongly worded letter to EU leaders, which was published last week, Cefic wrote: “Only a more united and integrated Europe, with a common currency, will provide future generations with peace and prosperity. We look to you now for clear leadership.”

It asked politicians, “to pursue the deeper integration of Europe; to undertake structural reforms to boost growth and employment; to establish a budgetary union, based on sound national accounts and integrated control of public finances; to begin a gradual harmonisation of fiscal policy.”

A tall order, indeed, and one that, as Authers says, could take years to fulfil, if it can be fulfilled at all, during which time the EU economy will continue to struggle.

Why would chemicals companies remain anything but extremely cautious  in the current climate?

Evidence of the impact of the Eurozone crisis came in Cefic’s mid-year report, released on June 14. The trade group says that chemicals output growth will be at a standstill in 2012 after a weak 1.3 percent gain in 2011.

And it adds that chemicals output will be stuck 5 percent below the 2007 peak for the rest of 2012 with only 2 percent growth next year.

It expects petrochemicals production to grow by 1.0 percent in 2012 following a 0.9 percent decline last year. It forecasts no growth for polymers following a drop in output of 0.2 percent in 2011.

In a reflection of the weak polymer markets, European low-density polyethylene (LDPE) spot prices last week fell to their lowest level since January 2010, according to ICIS news.