The blog tips its hat today to the International Energy Agency, whose oil research director, Antoine Halff, confirmed its own long-held view that the “recent run-up in prices will rekindle questions about the interplay of financial and fundamental factors in oil markets“, and warned explicity that “Brent prices can be misleading“.
Unfortunately, however, any action will come too late. Last week’s economic data confirmed that the eurozone saw negative growth in Q4. All the major economies, including Germany, have now joined the US in seeing a fall in output. And, once again, this highlights the chemical industry’s central role as a leading indicator for the global economy.
The problem remains that most policy makers prefer to live in a state of denial. Q2 company results offered a clear signal that recession was probably around the corner. But policy makers ignored this unwelcome news, and continued instead to pretend that, for example, higher oil prices represented evidence of robust recovery – rather than speculative trading funded by central bank lending programmes.
Equally, today, they prefer to ignore the mounting evidence that the outlook since the New Year remains very weak. Yet the data is there for anyone who wants to look. Chlorine and caustic soda markets, as always, are an excellent bellwether, due to their widespread range of uses. The chart above, based on Eurochlor data, highlights current weakness:
• January’s operating rate (red square) was just 76.4%, well below 2012’s 79.5%
• This continued the dismal trend since April, when rates peaked at 80.3%
• Chlorine output was thus just 819kt, versus 849kt in January 2012
The only positive note was that producers have not allowed stocks to build. Caustic soda inventories were close to a record low at just 228kt. This makes it unlikely that operating rates have much further to fall, at least in the short-term.
But the data is clearly signalling that construction and other key markets remain very slow. US data confirms the trend, with the Chlorine Institute reporting January chlorine output down by 8.3% versus January 2012, and the industry’s operating rate down to 80%.
Benchmark price movements since the IeC Downturn Monitor’s 29 April 2011 launch, and latest ICIS pricing comments are below:
PTA China, down 10%. “Market closed for Lunar New Year”
Naphtha Europe, down 8%. “Ongoing open arbitrage to Asia, and gasoline blending requirements for naphtha”
HDPE USA export, down 10%. “Exports to Asia have slowed but remain strong in central and South America”
Brent crude oil, down 6%
Benzene NWE, up 7%. “Falling global prices and speculation among some players saw numbers start to fall this week”
US S&P 500 stock market index, up 11%