By Nigel Davis
HOUSTON (ICIS)--“The outlook for H1 2014 [the first half of 2014] is the most positive it has been for several years, as growth in exports is joined by recovering domestic demand, boosting most industrial sectors,” The Bank of Tokyo-Mitsubishi said in European industry report at the start of this month.
The bank acknowledges that consumer confidence is still fragile and that unemployment blights many economies. This will limit the recovery as it puts a cap on discretionary spending.
“Nonetheless, we expect to see modest growth across Europe’s industrial economy into H2 2014,” it adds.
The analysis underscores growing confidence in the European chemical industry which expects Europe’s industrial growth to start to underpin stronger chemicals demand.
The chemical sector’s main important customers in automobiles and to a much lesser extent in construction are doing better business.
Last year, the European automotive industry saw its first growth since 2010. New car registrations were up in 10 of 18 west European countries with the biggest increase in terms of units in the UK.
The picture is mixed, with registrations in Italy declining, for example, but that only serves to illustrate the fragility of Europe’s economic recovery and the lack of consumer confidence overall.
“New registrations in western Europe in H1 2014 are forecast to grow at slightly faster rate (around 5%), as economic recovery spreads across the region. In line with other major countries, registrations in Italy are thus expected to return to growth,” the bank says.
In general, Europe’s manufacturing economy has improved because of the stronger domestic demand and increased exports. And if Europe’s industrial firms are selling more, then demand for chemicals should improve.
It is worrying that Europe’s construction output is still contracting but the rate of decline in the first half of 2014 is expected to be the slowest since 2008. Construction output in Italy shrunk the most in the second half of last year followed by that in France.
The decline in the residential sector should bottom out in 2014, the bank’s analysts say. Big budget deficits have stopped civil engineering and non-residential projects but the situation should ease.
For chemicals, fluctuating ethylene and other upstream petrochemical prices have reflected a generally weak demand environment but one that has shown some improvement. Supply has been balanced to demand although some deep-sea cargoes have applied some market pressure.
“Improved optimism regarding the eurozone economies, and its impact on petrochemical demand, means that demand will be the main market driver for the foreseeable future,” the bank’s chemicals analyst says in the report. He notes that the latest industry production confidence indicator “displays an upward trend through 2014”.
Germany’s chemicals trade group, the VCI, said last month that EU chemicals production had risen by 3.1% year on year in the fourth quarter of 2013 (3.6% in Germany) and 2.3% quarter on quarter.
On the macroeconomic basis: “For the first time since 2011, all five ‘heavyweights’ - Germany, France, Great Britain, Italy and Spain - contributed to growth,” it said.
It did suggest, however, that GDP growth in Germany would be moderate in coming quarters.
This slow growth, coupled with the constraints put on fiscal spending will continue to weigh on demand for chemicals in Europe.
Chemicals sector recovery is being driven by improved industrial demand but progress is slow.