The moment the blog has long feared has now begun to happen. Celanese chairman David Weidman said on Tuesday that acetic acid prices in Asia had dropped sharply in recent weeks. “Basically, orders just stopped”, he added. It is almost certain that this moment will now be repeated in other product areas and in other regions, particularly as customers will be aiming to keep working capital low for year-end reasons.
The blog warned a year ago in Budgeting for a Downturn that this cycle was probably underway. And earlier this month, in ‘Demand and prices in free fall’ it suggested that the ‘Hodges moment’ (cf last month’s ‘Minsky moment’ in banking markets) was about to arrive.
The ‘Hodges moment’ is when everyone in the chemicals value chain suddenly realises that they have been living in a parallel universe. Whilst they have been building inventory in advance of future oil price-related increases, demand in the real economy has been collapsing.
Now, the task is simple. Those of us who had the misfortune to be around in 1980, at least know what needs to happen next. Supply and demand need to be rebalanced to today’s lower level of demand as quickly as possible. The blog also hopes that its recent ‘Budgeting for Survival’ will provide a helpful scenario for those seeking to ‘test’ their thinking in today’s difficult market conditions.