October is usually one of the 4 strongest months for demand, alongside January, March and May. This year it should be particularly strong, as many say September’s demand was the weakest they can remember.
The reason it is normally strong is that companies shoukd be racing to fulfil orders for the Christmas season. Factories often shutdown for the second half of December, and so CFOs don’t like to hold stock in November, as this will boost their year-end working capital.
But at the end of October’s first week, it is clear from ICIS pricing reports that there is no rush to buy, anywhere in the world. China has been celebrating its mid-autumn festival, but inventories seem more than comfortable. One well-informed observer reports:
” Weakness originates from many sources. The external environment is weak, thus exports are weak especially in the appliance sector.. And business is soft because of very high inventories of finished goods (cars, appliances etc.).”
In Europe, it seems more or less certain that the economy is moving into recession. So companies are also living ‘hand-to-mouth’. This can cause price spikes, as we have seen in benzene recently, when inventories are too low to meet even a low level of demand. But this is not real strength.
Similarly, in the US, more and more of the blog’s friends are worrying about the ‘fiscal cliff’ at year-end. Most still assume that Congress will resolve the problem. But the politicians’ behaviour over the past 12-18 months does not inspire full confidence that they will put the country’s needs first.
Equally, Friday’s US employment figures showed employment at only 133.5m, versus 138m in January 2008. We have never before, since records began in 1939, seen a period where the number of jobs had not recovered to new highs after 4 years. And people who are out of work, or worried about losing their jobs, don’t spend unless it is essential.
The chart shows benchmark price movements since the IeC Downturn Monitor’s 29 April 2011 launch, with latest ICIS pricing comments below:
PTA China, red, down 20%. Market holiday
HDPE USA export, purple, down 12%. “Prices are expected by many to drop through October as domestic demand may weaken and US producers face more competition from Asian producers in the Latin American markets”
Naphtha Europe, brown, down 12%. “While refinery maintenance has rendered the market balanced to tight, an oversupply is expected to build during H2 October”
Brent crude oil, blue, down 11%
Benzene NWE, green, down 3%. “Downward movement this month was somewhat tempered by ongoing supply restrictions for H1 October”
S&P 500 Index (pink) up 7%