US chem index approaches bear market

HOUSTON (ICIS)–US chemical stocks fell sharply for the third consecutive trading day on Monday, as an index that tracks them is less than a percentage point away from entering a bear market.

The Dow Jones US Chemicals Index closed at 454.92, down by nearly 4% from Friday’s close at 473.61. The index is now 19.6% down from its 52-week high of 565.65. Earlier in the morning, the index fell to 449.17.

Among the US-listed chemicals followed by ICIS, every one fell.

Brazil-based sugar and ethanol producer Cosan was the biggest loser, falling by more than 10%. US-based pigment producer Chemours fell the least, declining by 0.1%.

Among the majors, Dow Chemical fell by more than 5%. DuPont fell by nearly 4%.

Refiner Phillips 66 declined by more than 5%, while polyolefins producer LyondellBasell dropped by nearly 4%.

Industrial gases producer Praxair declined by nearly 3%, while paints and coatings producer PPG Industries lost more than 5%.

Fertilizer producer PotashCorp fell by nearly 3% and Eastman Chemical declined by more than 4%.

The major US indices had started the day with exceptionally steep losses.

The Dow Jones Industrial average fell as low as 15,370.33, down more than 6% from Friday’s close of 16,459.75. The S&P 500 dropped as low as 1,867.01, down more than 5% from its close of 1,970.89.

A mid-day rally erased a substantial portion of the losses before losing strength.

The Dow Jones Industrial Average ended the day at 15,871.35, down 588.40 points or 3.57%.

The S&P 500 closed at 1,893.21, down 77.68 points or 3.94%.

The indices now meet the definition of a correction since both are down by more than 10% from their 52-week highs, 18,351.36 and 2,134.72.

Monday marked the third consecutive trading day that the Dow Jones fell by more than 2%, a trend not seen since the financial crisis of 2008-2009.

Several factors are contributing to the sell-off.

China’s economy, the second largest in the world, has been showing increasing signs of distress.

Earlier in June, the country’s stock markets had a major sell-off before government intervention reversed the losses.

Earlier, China’s yuan currency weakened against the US dollar. Last week, the Caixin Flash China Manufacturing Purchasing Managers’ Index (PMI) fell to 47.1 in August, a 77-month low. A PMI reading over 50.0 indicates the economy is generally expanding.

China’s stock markets have since resumed their declines.

China’s mainland benchmark Shanghai Composite closed down 8.49% and Japan’s key Nikkei 225 index fell 4.61%. China’s index tumbled 11.5% last week, 32% off from its 12 June peak which had been its highest in more than seven years.

Worries about China have spread to the rest of the world.

Commodity exporting countries that benefited from China’s growth are now struggling because of its slowdown.

Brazil, the second largest economy in the western hemisphere, now expects its GDP to contract by more than 2% this year. Its recession should extend into next year.

Falling demand in China has caused prices for several commodities to decline, putting more pressure on stock markets around the world.

West Texas Intermediate fell $2.21/bbl to close at $38.24/bbl. Brent fell $2.77/bbl to close at $42.69/bbl. Both benchmarks reached new lows for 2015 and fell to levels not seen since 2009.

Amid the fall in oil prices, Saudi Arabia and Dubai stocks declined by nearly 7%, while the Qatari equities markets fell 5% by the end of Sunday.

The declines spread to Europe, with the Dow Jones European chemical stocks index being down 4.45% at the end of the day.

France’s Arkema was down 6.18% as the markets closed, Germany’s BASF and Bayer were down 4.10% and 4.99% respectively, while fertilizer producer Yara International was 6.38% lower.

Additional reporting by Muhamad Fadhil, Graeme Paterson and Nurluqman Suratman