Commentary: Markets break records

Chemical markets are being roiled by the collapsing oil price, and the impact is feeding down the supply chain from key feedstocks into derivatives. The impact is so severe that some downward price movements are setting records.

Europe styrene is a good example where, on 16 December, bids saw their biggest fall since ICIS records began in 2005. The plunge was driven by falling crude, benzene and naphtha prices as well as weak demand. Styrene values fell throughout the day with the sharpest seen during the afternoon, when bids and offers fell by $60-140/tonne from the midday range.

ICIS journalists are covering these movements in detail and this week’s chemical price and trends pages are peppered with superlatives such as “collapse”, “slump” and “plummet” as reports emerge of price levels not seen for several years.

For example, in Europe, polyethylene terephthalate (PET) prices have dropped to levels not seen since January 2010, with upstream paraxylene (PX) falling in tandem. Meanwhile, in Asia spot adipic acid prices for Chinese-origin cargoes fell to a record low since ICIS introduced the quote in 2011 because of falling crude and feedstock benzene prices.

Apart from falling feedstocks, insipid demand is the other big factor in many markets. Predictable end-of-year destocking is having an impact but the slowdown in key markets such as China and Europe may signal a more structural change to demand patterns.

China’s leaders seem to be in no mood to reverse the slowdown there through any form of significant stimulus. They have become focused on sustainable consumption-led growth rather than on investment. In fact an official Chinese state report suggests that $6.8 trillion was wasted on “ineffective investment” in parts of the economy given state support since the 2008 crisis.

Europe’s nascent recovery also risks being thrown into reverse, not helped by Russia’s ailing economy and currency plus jitters over changes of government and a return to instability in Greece.

However, falling oil prices should ultimately stimulate consumer-led demand as fuel and energy cost less. Excepting major oil-producing nations, GDP growth should be stimulated over the coming months. This will be a blessing for chemical producers coping with a period of volatility which, for some, seems to have echoes of the 2008 crash.