Nobody ever said that financial and chemical were meant to be easy to understand. But current developments are clearly far more complex than normal. We have grown used to manipulation by policymakers, via their various quantitative easing (QE) programmes. But today, we also have completely opposite views in the markets themselves:
• Benzene prices (green line) collapsed $100/t last week, on concern over lack of demand
• Polyethylene prices (purple) jumped $50/t, as producers held out for price increases
• Naphtha prices (brown) fell $50/t, again due to lack of demand
• PTA prices (red) rose $20/t on optimism over a recovery in China
What conclusion are we meant to draw from these quite opposite movements in major markets?
A New Year is a traditional time for price increases. But alongside this process, some players have clearly decided that recovery must finally be just around the corner. They are thus prepared to be encouraged by any sign that the stimulus programmes are having an impact. Equally, though, others are now coming to the opposite conclusion, that these programmes have simply been a waste of time and money.
The effect on the markets is to establish a series of cross currents. It is rather like being at the seaside, and watching the tide as it turns. Water rushes one way, and then another in a seemingly random manner.
As with the tide, eventually the real direction will become clear. But for the moment, the risk levels have become much higher than usual. Even though the blog has a clear view of where it thinks we are headed, it would therefore not want to trade today. It would be too easy to be knocked over by a big wave, that happened to arrive from an unexpected direction.
The chart shows benchmark price movements since 2011, and latest ICIS pricing comments below:
Naphtha Europe, black, down 19%. "Petchem requirements remain muted, and the market is still considered very long"
HDPE USA export, purple, down 17%. "Producers continue to attempt to push through a 5 c/lb increase for January"
PTA China, red, down 10%. "Given comfortable raw material inventories, textile factories and traders slowed down their purchases and are adopting a wait-and-see stance until raw material prices stabilise."
Brent crude oil, blue, down 11%
Benzene NWE, green, up 5%. "Consumers are unclear on end-user demand"
S&P 500 stock market index, pink, up 8%