The above chart, from the invaluable American Chemistry Council (ACC) weekly report, highlights the scale of Q1's inventory build in N American polymer markets (polyethylene, polypropylene, PVC).
This build took place as consumers down the value chain rushed to buy forward, as WTI oil prices surged 41% between November - April.
Their buying was not based on actual demand, but on their need to protect margins. Most companies set sales prices for 90 or 180 days ahead, so anyone who had not bought forward could have seen planned profits turn into losses:
• The orange line shows the 22% rise in thermoplastic inventories from 4.25bn lbs (1.93Mt) to 5.2bn lbs (2.35Mt). Q2 saw this start to be worked through downstream, as consumers reduced new orders.
• Worryingly, however, we seem now to be entering the second stage of the downturn. The blue line shows that consumers are now seeing lower demand, and the ACC note the 3 month moving average dropped to 4.56bn lbs in July.
This two-stage process is exactly in line with the experience of previous oil-price induced recessions, as the blog highlighted in mid-April.
September will therefore be a crucial month.
History suggests end-user demand will remain weak, as individuals worry about the state of their finances and rising job insecurity. But, of course, we can still hope that 'this time will be different'.