CMCI – Europe buyers see sharp rise in future profitability, confidence

LONDON (ICIS)–European chemical buyers have become increasingly confident in future order book volume and profitability growth, even as confidence in more favourable future business conditions has declined, analysis of the June ICIS Europe Chemical Markets Confidence Index (CMCI) showed on Wednesday.

Growing confidence in future order book volumes has likely been driven by several upward revisions in European GDP forecasts along with the 33 straight month of increasing European passenger car sales in May.

Eurozone first-quarter GDP growth has been revised up by statistics agency Eurostat to 0.6% on the back of increased household spending compared to the closing three months of 2015.

The figure corresponds to Eurostat’s flash estimate for economic growth of the bloc in late April. The agency revised the figure down in May to 0.5%, before shifting the figure back up to 0.6%

The European Central Bank (ECB) revised its European growth expectation upward in its June forecast to 1.6% for 2016, compared with an estimate of 1.4% in May.

The EU’s passenger car market grew for the 33rd consecutive month in May with new registrations increasing by 16% year on year, according to data from the European Automobile Manufacturers Association (ACEA).

The number of new registrations – 1,288,220 units – comes close to May 2008, just before the economic crisis hit the automotive industry. 

Rising confidence in increasing future profitability is likely also linked to strengthening demand, supported by decreasing volatility in crude oil prices and upstream costs – perhaps heightening buyers’ belief in their ability to manage more negative expectations on future business conditions.

Although expectations on future business conditions have fallen sharply among buyers, they have come from a high base, and buyers are still more than five times as confident in improving future business conditions as producers or traders and distributors.

Nevertheless, the UK’s referendum vote to exit the EU has triggered financial uncertainty across Europe and destabilised stock, currency, and crude oil markets – at least in the short-term.

It is unclear what role the so-called Brexit vote played in the fall in confidence in future business conditions, as the index was collated in the week preceding and in the immediate aftermath of the vote.

Although it is likely that it played a role for some players in their views in confidence at the end of the week, it is too early to see the full manifestation of the impact.

The newly established ICIS Europe CMCI aggregates sentiment from hundreds of petrochemical market players actively involved in price negotiations across more than 60 different markets.

The Europe CMCI runs from +100, to -100, with zero on each index representing neutral, or uncertain conditions, a negative score indicating bearish expectations and a positive score representing bullish expectations. The indexes also gather sentiment on the comparison between the current situation and the situation across the past 12 months to give a complete picture of current market conditions and confidence. The information is gathered in the third week of each month.  A full methodology is available on request.

For more details on the overall Europe CMCI data, click here