The IeC Downturn Alert has hopefully done the job for which it was intended.
It was launched at the end of April, when the blog became convinced that the global economy was highly likely to enter a new downturn. It also realised from its experience in 2007-8, when it later became known as ‘The Crystal Blog’, that this view was probably not widely shared.
It therefore wanted to monitor the situation on a regular basis. It decided to select benchmark chemical products from the key regions, as a way of linking its wider concerns with the evidence on the ground.
The role of ICIS pricing, and its network of editors, has therefore been crucial. This has enabled the blog to follow individual product markets, and provide an objective analysis of their weekly fluctuations.
The chart above is, of course, a key reason why the blog was convinced a new downturn was near. As it noted in June, history shows that recession (shaded area) has occurred every time oil prices (red line) have remained above $50/bbl in real (eg inflation adjusted) terms.
Sadly, it appears that this time is not going to be different.
The evidence for a renewed downturn is now all around us:
• The OECD says “economic recovery appears to have come close to a halt in the major industrialised economies” with likely H2 growth at <1%.
• China's economy is slowing fast. Ethylene demand growth tracks GDP, and was just 1.9% in H1, compared to ~10% in 2009-10.
• The American Chemistry Council (ACC) reported Friday that “we see an economy still near stalling speed“.
The blog hopes that the IeC Downturn Alert, coupled with its IeC Boom, Gloom Index, has helped to catalyse debate about the potential for a renewed downturn. We cannot avoid the severe problems that this will cause. But hopefully the Alert has provided companies with clear advance warning that problems lay ahead.
Equally concerning is the fact that Western central bankers and policymakers have so completely misread the underlying economic situation over the past 3 years. The blog will look at the likely reason for this terrible mistake over the next two days.
Price movements since the Alert launched, and ICIS pricing comments this week are below:
Benzene NWE, down 16%. “Values softened over the course of the week due to wider economic bearishness.”
S&P 500 Index, down 15%.
HDPE USA export, down 14%. “Prices are still too high to compete with Asian prices”.
Naphtha Europe, down 13%. “Demand from petchems remains weak”.
Brent crude oil, down 9%.
PTA China, stable. “Underpinned by firmer feedstock PX prices and pre-holiday restocking activity by end-users”.