http://www.icis.com/blogs/chemicals-and-the-economy/ en Copyright 2009 Sat, 07 Nov 2009 11:47:21 +0000 http://www.sixapart.com/movabletype/ http://blogs.law.harvard.edu/tech/rss Politicians and analysts often focus on selling dreams. Otherwise, we might not be tempted to buy their promises of better times ahead. But those running businesses have to remain realistic. BASF's CEO, Jurgen Hambrecht, did exactly that in his comments on the outlook. And the above chart, from the UK's National Institute of Economic and Social Research, provides a visual example of the current economic position. The black line shows the change in UK GDP during the 1930/34 recession. And the thick red line shows how uncomfortably close we are to following its path in the current downturn. Only the 1979/83 recession (green line) comes close to matching it in recent times. Of course, some countries are currently seeing better economic performance than the UK. But it is still the world's 6th largest economy, and accounts for 3% of global GDP. As such, it is not a bad benchmark. The blog does expect GDP to begin to recover in most major economies next year. But the chart is a good reminder that it may take some years for many countries to regain the 2007 peak in terms of actual size of GDP.]]> http://www.icis.com/blogs/chemicals-and-the-economy/2009/11/uk-downturn-follows-the-193034.html http://www.icis.com/blogs/chemicals-and-the-economy/2009/11/uk-downturn-follows-the-193034.html Consumer demand Chemical companies Economic growth Financial Events BASF GDP recession UK Sat, 07 Nov 2009 11:47:21 +0000 Ed Dineen noted that China's polyethylene demand seems partly linked to changes in crude oil pricing, "It turned down somewhat as we saw crude retreat a little, but as crude turned back up toward $80/bbl, we saw the Chinese market react strongly to that". Secondly, Jurgen Hambrecht worried that although "business had stabilised at a low level", "little attention was being paid to structural overcapacities". Hambrecht also warned that "the effects of stimulus packages are starting to peter out, many companies are dealing with financing problems, the number of bankruptcies is increasing and unemployment is rising". ]]> http://www.icis.com/blogs/chemicals-and-the-economy/2009/11/insights-from-lyondellbasell-a.html http://www.icis.com/blogs/chemicals-and-the-economy/2009/11/insights-from-lyondellbasell-a.html Chemical companies Consumer demand Economic growth Financial Events BASF China LyondellBasell Polyethylene Fri, 06 Nov 2009 14:02:47 +0000 The blog is changing its US auto sales chart, now that a year has passed since volumes collapsed last October. Year-on-year % changes become meaningless as a result. Instead, it will now show monthly volumes, on a total US basis (blue line) and for the major producers (dotted lines). Key highlights this month are: • The impact of the stimulus programme has now disappeared. Total US sales were 673k vs 1007k in August. • Ford, GM and Toyota maintained the same volumes as in October 2008, but Chrysler was down 30%. • Looking back 2 years to October 2007, total sales were down 30%. Toyota and Ford were down c25%: GM and Chrysler were down c50%. US autos are a critical market for chemicals. Between 1995 - 2007, over 15 million were sold each year. Last month's annualised sales rate was just 10.5 million. This implies a total market worth only $29bn, versus over $40bn in 2007. This change is one indicator of the 'new normal' that the blog expects for the next few years, as Western consumers spend less and rebuild their savings. In these circumstances, chemical companies with the best strategy and execution ability will be relative winners, like Ford and Toyota. Those who do not adapt well risk following the fate of GM and Chrysler into bankruptcy.]]> http://www.icis.com/blogs/chemicals-and-the-economy/2009/11/us-auto-sales-enter-the-new-no.html http://www.icis.com/blogs/chemicals-and-the-economy/2009/11/us-auto-sales-enter-the-new-no.html Chemical companies Consumer demand Economic growth Financial Events Chrysler Ford GM Toyota Wed, 04 Nov 2009 08:55:40 +0000 This year's speculative boom in China's economy, created by major government lending and stimulus programmes, now seems to be ending. The evidence for this is in the above chart, showing LLDPE futures trading on the Dalian exchange. This hit 80 million tonnes (MT) in April, versus total global output for this type of polyethylene of only 2MT a year. But volume has since been falling steadily. Last month, it was back at 13MT. And prices failed to make new highs, even though crude oil prices hit a new 2009 peak at over $80/bbl. ]]> http://www.icis.com/blogs/chemicals-and-the-economy/2009/11/chinas-economic-bubble-continu.html http://www.icis.com/blogs/chemicals-and-the-economy/2009/11/chinas-economic-bubble-continu.html Chemical companies Consumer demand Economic growth Financial Events Dalian Futures Exchange Polyethylene Tue, 03 Nov 2009 06:26:55 +0000 "Buy on the rumour, sell on the news" is the classic indication of a weak market. A lack of follow-through buying reveals that market action is not supported by fundamentals, but only by sentiment and momentum. Friday's 2.8% fall on the US S&P 500, in reaction to Thursday's positive US GDP number, was therefore a clear sign of underlying weakness. Equally, the new IeC Boom/Gloom Index (above) shows no increase in sightings of "green shoots". And the Frugal Index has actually risen. This conclusion is supported by the generally cautious tone of recent company results. The chemical industry is a well-known leading indicator for the global economy. If a real upturn was underway, the major western companies would have noticed it by now.]]> http://www.icis.com/blogs/chemicals-and-the-economy/2009/11/buy-on-the-rumour-sell-on-the.html http://www.icis.com/blogs/chemicals-and-the-economy/2009/11/buy-on-the-rumour-sell-on-the.html Chemical companies Consumer demand Economic growth Financial Events Futures trading Oil markets boom frugal gloom US GDP Mon, 02 Nov 2009 06:25:52 +0000 The good news is that the stabilisation seen in Q2 has been maintained. But companies remain cautious on the outlook, to judge from Q3 reports. CEOs are sceptical about the impact of government stimulus efforts in the West, and fear demand will fall back as these end. The only optimists are in China and India. Akzo. "Overall we don't foresee a quick recovery." BASF. "A very slow recovery and an uneven recovery at that." Bayer. "Too early to speak of a self-sustaining upswing in industry". Borealis. "We are seeing a slow grind upwards". BP. "Margins under pressure in Q4 due to new capacity". Bunge. "Fertilizer business pressured by weak pricing." Celanese. "See modest recovery of global economies." Croda. "Tough market conditions". Dow. "Do not count on material improvements in market conditions." Dow Corning. "Still feeling the impact of the global economic recession." DuPont. "Seeing market stabilisation and early signs of recovery". ExxonMobil. "Earnings down by 19%, mainly due to weak margins". WR Grace. "Dynamic and challenging market conditions." Henkel. "We see stabilisation in our markets". Ineos. "Challenge is the slow return of domestic demand." Lonza. "Environment of high volatility is expected to continue". LyondellBasell. "Outlook weakened by signs of declining US PE exports." Nalco. "Starting to return to a growth path as economies recover." Occidental. "Continued weakness in the US economy". PetroChina. "Ethylene output in the 9 month period rose". Polimeri Europa. "Prolonged weakness in industry fundamentals". Praxair. "Demand has yet to show meaningful signs of recovery". Quaker. "Still a great deal of uncertainty in our end markets." Reliance. "Demand for most petrochemical products remained strong". SABIC. "Has maintained the same operational levels." A Schulman. "Signs of economic recovery could prove misleading." Sherwin-Williams. No real signs of "the rumoured economic recovery." Shell. ""Affected by the weak global economy." Sinopec. "Demand upturn of chemical products". Solvay. "Continued to be affected by the difficult economic environment" Trelleborg. "Demand in many segments remained weak". Yara. "Distributors still unwilling to build inventories for the spring". Yule Catto. "Uncertainty remained about the global economic situation". ]]> http://www.icis.com/blogs/chemicals-and-the-economy/2009/10/companies-remain-cautious-on-t.html http://www.icis.com/blogs/chemicals-and-the-economy/2009/10/companies-remain-cautious-on-t.html Chemical companies Consumer demand Economic growth Financial Events Akzo Nobel BASF Bayer Borealis BP Bunge Croda Dow Chemical Dow Corning ExxonMobil Henkel INEOS Lonza Nalco Occidental Polimeri Europa Praxair Quaker Reliance SABIC Schulman She;ll Sherwin Williams Sinopec Solvay Trelleborg WR Grace Yara Yule Catto Sat, 31 Oct 2009 09:47:12 +0000 The blog is very pleased to have been named one of '5 Great Chemical Industry Blogs' by Joe Acker, president of the US Society of Chemical Manufacturers & Affiliates (SOCMA). Mr Acker notes in his comment on the blog: "Everyone wants to keep an eye on the market. Paul Hodges does a great job of not just tracking stocks and acquisitions, but also tracking trends and probing the implications of things that happen all over the world."]]> http://www.icis.com/blogs/chemicals-and-the-economy/2009/10/5-great-chemical-industry-blog.html http://www.icis.com/blogs/chemicals-and-the-economy/2009/10/5-great-chemical-industry-blog.html Fri, 30 Oct 2009 07:39:07 +0000 Many thanks to everyone who joined the Webinar today. I hope you found it useful. ]]> http://www.icis.com/blogs/chemicals-and-the-economy/2009/10/thanks.html http://www.icis.com/blogs/chemicals-and-the-economy/2009/10/thanks.html Thu, 29 Oct 2009 22:58:31 +0000 The purpose of liquidity in financial markets is to enable price discovery. But when super-fast computers take over the trading, that purpose disappears. Instead, we have today's "correlation trading". Olivier Jakob of PetroMatrix demonstrates this with the above chart, which shows Tuesday's detailed trading patterns in WTI and the Dow Jones Index. Clearly, they are simply trading in tandem on momentum, with no regard for real fundamentals or market sentiment. This creates a very high risk scenario for chemical companies. As Jakob notes, we are now in "a situation where no single market knows exactly what it is pricing". Real supply/demand balances for crude oil are irrelevant to these computers, and the traders who drive them. But, at some moment, probably not too far away, fundamentals will reassert themselves. Higher oil prices destroy demand. Already, consumer confidence is falling, even whilst stock markets (normally a positive driver) move higher. Prudent CFOs and business managers should be alarmed by what is happening, and take the necessary avoiding action. It will all end in tears.]]> http://www.icis.com/blogs/chemicals-and-the-economy/2009/10/computerised-trading-dominates.html http://www.icis.com/blogs/chemicals-and-the-economy/2009/10/computerised-trading-dominates.html Chemical companies Consumer demand Economic growth Financial Events Futures trading Leverage Oil markets crude oil prices financial markets Thu, 29 Oct 2009 07:51:00 +0000 Over the past year, much of the Western financial system has been on life support. Now the European Central Bank (ECB), like its peers, is grappling with the question of 'What happens next?' ECB Board member Lorenzo Smaghi set out the key issues yesterday: • "Our role (as a central bank) is limited to the provision of liquidity to solvent banks. • "This role does not include the recapitalisation and restructuring of the banking system. • "We expect banks to take a more active role in the process of recapitalisation. • "The banking system cannot be supported indefinitely by the extraordinary measures taken by central banks. An exit strategy will inevitably need to be implemented in due course. He highlights the issue with the above chart, which shows the collapse of all forms of financial activity in the eurozone over the past 2 years. And he argues that nothing will change unless "individual incentives, those of bank managers and shareholders, are aligned with the collective incentives to support the economy." Currently, of course, most banks are instead pursuing their own agendas to maximise short-term bonuses and profits. The blog therefore shares Smaghi's concern that unless politicians and regulators act quickly, the eurozone may well repeat "the experience of Japan over the past decade, where delays in restructuring and recapitalising the banking system undermined the recovery after the crisis".]]> http://www.icis.com/blogs/chemicals-and-the-economy/2009/10/the-limits-of-central-bank-len.html http://www.icis.com/blogs/chemicals-and-the-economy/2009/10/the-limits-of-central-bank-len.html Consumer demand Economic growth Financial Events Leverage M & A European Central Bank Lorenzo Smaghi Wed, 28 Oct 2009 12:40:20 +0000 Budget Outlook Webinar will be held at 15:00 GMT (16:00 CET, 11:00 EDT, 19:00 Dubai). The format will be a 30-40 minute presentation, followed by online discussion. To make registration easy, it will now be hosted using Microsoft Live Meeting. If you would like to join the Webinar for the presentation, please click here, and use entry code w@\!7{F For audio, dial +44 1452 584201, conference code 4389561610 If you would like to obtain a PDF copy of the presentation before the Webinar, please email either Simon.Robinson@icis.com or myself. Colleagues and business partners are very welcome to join the Webinar]]> http://www.icis.com/blogs/chemicals-and-the-economy/2009/10/webinar-access-details-for-thu.html http://www.icis.com/blogs/chemicals-and-the-economy/2009/10/webinar-access-details-for-thu.html Tue, 27 Oct 2009 18:50:45 +0000 The BBC had a very interesting interview last night with Warren Buffett, the world's most successful investor and wealthiest man. Buffett stakes out a clear position on the relative unimportance of financial services in the economy, and on whether there is a need to "motivate" bankers via large bonuses: • "The idea that people who move money around are some favoured class strikes me as getting pretty far away from where we should be". • "Its infuriating for people to see nobody going to jail (as a result of the financial disasters) and a lot of them instead walking off with tons of money at a favourable tax rate". • "The very liquidity of stock markets causes people to focus on price action, and turns what should be an advantage into a disadvantage". • "It is productive output, and the stream of income that the asset produces over time, that one needs to look at". • "I've been in the right place at the right time, and I shouldn't delude myself that I am some sort of superior individual as a result of this. I've been lucky, and its fair enough that a lot of that should go back to the people who got the short straws in life." Excerpts from the interview can be seen by clicking here. ]]> http://www.icis.com/blogs/chemicals-and-the-economy/2009/10/buffett-focuses-on-long-term-v.html http://www.icis.com/blogs/chemicals-and-the-economy/2009/10/buffett-focuses-on-long-term-v.html Economic growth Financial Events Futures trading Tue, 27 Oct 2009 10:24:38 +0000 The blog has learnt to be sceptical when new political leaders announce new directions for their country, after winning elections. But its Japanese friends emphasised at EPCA that real change might be taking place in Japan, after 50 years of LDP government. This, of course, could have a major impact on Asian politics. Japan is also the world's 2nd largest economy, with GDP of $5trn, and a leading player in global chemical markets. New prime minister, Yukio Hatoyama, certainly set out a new direction in his speech to parliament today, claiming that "we're standing at a crossroads whether to go down a declining path by holding onto traditional thinking or find a new road fostered by new aspiration and ideas." He also played down hopes of a quick economic recovery, noting that "the financial and economic crisis has had a serious impact on the economy and unemployment, and things are still in an unpredictable state."]]> http://www.icis.com/blogs/chemicals-and-the-economy/2009/10/japan-says-economic-recovery-u.html http://www.icis.com/blogs/chemicals-and-the-economy/2009/10/japan-says-economic-recovery-u.html Chemical companies Currencies Economic growth Financial Events Japan Mon, 26 Oct 2009 10:43:22 +0000 Budget Outlook is an independent view of the key issues which will impact chemical sales and margins in 2010. Previous Outlooks have stimulated much debate within the industry. We are therefore arranging a free 1 hour Webinar for blog readers, on Thursday at 15:00 GMT (16:00 CET, 11:00 EDT, 19:00 Dubai). The format will be a 30-40 minute presentation, followed by online discussion. To make registration easy, it will now be hosted using Microsoft Live Meeting. If you would like to join the Webinar for the presentation, please click here, and use entry code w@\!7{F For audio, dial +44 1452 584201, conference code 4389561610 If you would like to obtain a PDF copy of the presentation before the Webinar, please email either Simon.Robinson@icis.com or myself. Colleagues and business partners are very welcome to join the Webinar]]> http://www.icis.com/blogs/chemicals-and-the-economy/2009/10/thursdays-free-webinar-on-the.html http://www.icis.com/blogs/chemicals-and-the-economy/2009/10/thursdays-free-webinar-on-the.html Sun, 25 Oct 2009 13:13:04 +0000 China will pump loans worth $1.3trn into its economy this year, equal to 1/3rd of GDP. Equally, by tying the yuan to the US$, China has achieved a major devaluation against major currencies such as the euro. The result has been that China's Q3 GDP rose less in "nominal" terms than in "real" terms. Normally one has to deduct inflation from the "nominal" figure. But in Q3, China's "nominal" GDP growth was just 4.7%, but rose to 8.9% in "real" terms as a result of massive deflation. When one looks at specific chemical industry statistics, the result is just as alarming. As the blog noted back in February, China allocated $58bn to accelerate the implementation of petrochemical expansion plans. And as ICIS news has reported, the new capacity is clearly not being delayed. The two big projects for 2009, PetroChina Dushanzi and Fujian are now online. And there seems little reason to expect 2010's big projects (Sinopec Tianjin, Sinopec Zhenhai) to be delayed. Including other smaller expansions, and PetroChina Fushun in H1 2011, China will have increased ethylene capacity by 6 million tonnes in 2.5 years. The impact is shown in the excellent new ICIS Asian weekly polyethylene margin report above. The yellow bar shows regional ethylene margins (based on NEA export netback values into PE) are already down to just $105/t. As one experienced industry observer told the blog, "2002/3 conditions are beckoning" if Western demand does not recover quickly. ]]> http://www.icis.com/blogs/chemicals-and-the-economy/2009/10/china-exports-deflation-as-it.html http://www.icis.com/blogs/chemicals-and-the-economy/2009/10/china-exports-deflation-as-it.html Chemical companies Consumer demand Currencies Economic growth Financial Events Oil markets China deflation ethylene ICIS pricing Polyethylene Sun, 25 Oct 2009 12:42:48 +0000