The American Chemistry Council has recently updated its invaluable work on US polymer chain inventories. Last December this led the blog to conclude that we would see "a strong H1", as inventories were low, whilst demand was likely to rise supported by seasonal and stimulus factors.
But the ACC's latest analysis (above) leads to a less optimistic conclusion. The trend is now pointing to a period of destocking, with the black line slipping below zero. March (red column) was a strong month for demand, but was then followed by a slower April and May.
The ACC note that whilst some restocking took place in June, "the recent data suggests that customers may actually be drawing down their inventory". Although only 23mlbs (11 KT) overall, this is very unusual for a period which is supposed to be seeing a major economic recovery.
Normally, manufacturers should be increasing inventory in anticipation of better times ahead for demand. So the data adds to the general sense that the US recovery may, in fact, be stalling now the stimulus programme has peaked:
• US unemployment remains at 9.5%, and 1.2 million people have dropped out of the labour force in the last 3 months
• US Q2 GDP came in below expectations at 2.4%, a very weak reading for this stage of a normal recovery
• US housing starts have fallen to their lowest-ever levels following the end of the $8k tax credit.
• And as the ACC note, although US auto sales in July were at an encouraging 11.6 million rate, this was due to "higher incentive spending, higher used vehicle prices (used as a trade‐in), and by fleet purchases".
Q3 is clearly going to be seasonally weaker for chemical demand. And the blog is beginning to fear that Q4 may also be weak, unless end-user demand stages a sudden recovery. March may, in fact, turn out to have been the peak demand month for the current cycle.