Prices rise whilst demand falls

D'turn 10Aug12.pngThe blog is extremely concerned about recent market developments.

Nobody minds higher prices, if they are a response to strong demand and can be passed through to customers. But today’s high prices have nothing to do with strong demand. On the contrary, in fact. Most consumers are actually reducing output.

Equally, the wider economic outlook continues to weaken:

• European demand is very weak in most key industries. Auto sales are already 7% below 2011 levels, and seem likely to fall further
• US demand is slowing, as monitored by the ACC’s new Barometer, whilst policymakers are focused on the upcoming Presidential election
• China’s demand for products such as polyethylene is below 2011 levels. Yet leadership changes underway have created a power vacuum

Financial markets, however, have once again bid up crude oil prices in the mistaken belief that demand is ‘about to recover’. Yet anyone on the ground could tell them this was mistaken. All that is happening is that buyers are again rushing to cover short-term needs as crude rises.

Another reason for concern is that these moves are taking place in very thin August markets. Many executives are either on the beach, or otherwise away from their desks. They will be horrified by what they find on their return. Hence the blog’s own concern.

Benchmark price movements since the IeC Downturn Monitor’s 29 April 2011 launch, with latest ICIS pricing comments, are below:
PTA China down 24%. “Supply shortage was caused by three typhoons which struck China’s east coast”
HDPE USA export down 22%. “Material remaining in short supply”
Naphtha Europe down 16%. “Between 500kt-700kt from NWE and the Med are set to arrive in Asia during August/September”
Brent crude oil down 10%
Benzene NWE down 3%. “The bullishness for benzene in recent months has seen styrene producers cut back operating rates due to poor economics”
S&P 500 Index up 3%

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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