The American Chemistry Council's excellent weekly report contains some potentially good news on the outlook for Q1 demand.
Its detailed analysis of US polymer markets (above) suggests customers are currently reducing their inventories. CFO's presumably assume that the main impact of the housing/auto stimulus programmes is now finished, and are no doubt keen to keep working capital under control for year-end.
Thus October's end-user demand (blue line) was around 100kt higher (230 m lbs) than actual product supplied (red line). This continued the Q3 trend, when consumers reduced inventory by c70kt (150 m lbs) a month. It is quite likely this destocking will continue through December. But then the situation could change, as consumers should need to restock ahead of the usual Q2 demand peak in autos/construction.
In turn, 2010 might therefore see the industry return to its normal seasonal pattern, with a strong H1, followed by a slow Q3 holiday season, and then a final burst of activity in October/November before the Xmas break. Demand forecasting would become easier, and inventory levels could be better aligned with market needs.
The main risk to this scenario lies in crude oil markets. The blog continues to worry that today's $80/bbl price is driven by the 'correlation trade' (sell US$, buy oil and the S&P 500) and not supply/demand fundamentals. If financial markets tire of this trade, and oil prices weaken, then renewed destocking in the value chains is a real possibility.