Downturn Alert shows markets still weakening

D'turn 26Jun11.pngThe IeC Downturn Alert launched on 2 May. Later that day, the US S&P 500 – the world’s most important stock index – hit a post-Crisis high of 1370. Last Friday, it closed down 7% at 1268 (purple dotted line above).

Many expect this to be just a minor correction, and still believe a new chemicals SuperCycle is underway. The blog, however, fears that we have simply seen a liquidity-fuelled rally over the past 2 years, funded by US, European and China’s central banks.

Its arguments are set out in ICIS Chemical Business this week. Please click here to download a free copy. This summarises Chapter 2 of its new eBook (co-authored with John Richardson), Boom, Gloom and the New Normal – more details tomorrow.

ICIS news confirms the current weakness. A European producer told Stephanie Wilson on Friday that “ethylene is falling like a stone in the spot market and you can find any price in the PE spot market. Traders and producers are offering huge discounts just to get rid of their stocks.”

The chart, based on ICIS pricing, updates since the Alert launched:

Naphtha Europe (brown dashed line), down 20%. “Sources spoke of crackers running at reduced rates of around 80-85%, further diminishing petchem demand”.
Benzene NWE (green), down 16%. Traders are unsure of how the market would unfold in terms of pricing… Demand is said to be softening in the European styrene market”.
PTA China (red), down 12%. “Sellers rushed to offload their cargoes to lock in profits in view of the current tight credit crunch”.
Brent crude oil (blue, dotted), down 12%. The banks produced new arguments to support crude prices, and their year-end bonuses. But even Goldman Sachs now only forecast $105-107/bbl by the end of July.
HDPE USA export (purple), down 11% “A buyer said Asian and Middle Eastern imports (into Latin America) were 15-20 c/lb ($330-440/t) lower than N. American prices”.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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