We are now nearly at the end of May, and still there is no sign of a sustained recovery in demand. This mirrors the weakness seen in January and March – normally also very strong months. Now, unless seasonal patterns are overturned, demand will remain slow until September – when people return from holidays and are normally rushing to complete business before Christmas.
Thus markets continue in their ‘no man’s land’ of the past 2 years. The optimists still assume a recovery is inevitable, but delayed – “just another 6 months” is their message:
• But to judge by recent reactions to the blog’s New Normal presentations, the optimists are no longer in the majority
• Instead, many people suspect central bank stimulus activity has simply increased government debt levels for no long-term gain
As the Financial Times chart shows, investors have also become increasingly wary of today’s high prices in financial markets. They are starting to question central banks’ view that stronger stock markets will provide the ‘escape velocity‘ that will lead to economic recovery. Thus European share volumes hit a 12-year low last week, with the 200-day moving average at 1.8bn/day – half peak levels. In turn, this means that volatility continues to increase.
Japan’s performance on Thursday highlights the potential problems ahead. Its Nikkei index fell an astonishing 7%, in response to weak data from China. Other global markets also weakened in response to this blast of cold air from the real world. And even US markets weakened during the week, as investors realised the Federal Reserve cannot continue adding stimulus forever.
The fact remains that chemical markets are an extremely reliable indicator of conditions in the real world. And the outlook statements from major companies suggest that China is now following Europe into an extended slowdown. The blog suspects that by September, only very optimistic investors and business managers will still be assuming either that recovery is still inevitable, or that the US can remain immune from developments in the wider world.
Latest benchmark price movements since January and ICIS pricing comments are below:
PTA China, down 11%. “Peak demand season for filament yarn/PET ends in late June or July”
Naphtha Europe, black, down 11%. “Offtake from petchems sector is weak, amid the wider economic concerns”
Benzene NWE, down 8%. “Demand still struggling to keep pace with benzene price rises”
Brent crude oil, down 7%
HDPE USA export, up 4%. “Few fresh offers heard in the market”
S&P 500 stock market index, up 13%
US$: yen, brown, up 15%