Intermediate chemicals see sharp drop in confidence in July CMCI shows

LONDON (ICIS)–Intermediate chemical markets have seen the sharpest fall in confidence following the UK vote to leave the EU, analysis of the July ICIS Chemical Market Confidence Index (CMCI) showed on Tuesday.

July saw the first full CMCI conducted since the UK’s vote to leave the EU, with the June data collected the week of the vote, making it impossible to tell the impact until now.

Intermediate markets saw falls across all of the confidence indicators compared with June, with the sharpest falls seen on order book volume sentiment both compared with the 12 months ago and expectations for the next 12 months, and current business conditions compared with 12 months ago.

Nevertheless, despite the sharp drop in confidence, the July CMCI still remains in positive territory across all forward indicators, albeit markedly less so.

The falls in confidence across the indicators shows the direct impact the financial instability caused by the Brexit vote has had on the chemical industry. The IMF, VCI and others have warned that the uncertainty caused by the UK’s vote to leave the EU will have an impact on European GDP growth.

Coupled with this, the overall Europe CMCI points to a potential shift to a seller’s market, which, if it comes to pass, could lead to margin pressure on intermediate markets from both sides of the chain.

Building block chemical markets have become more confident across all indicators compared with June, except for current business conditions, while intermediate markets have become more negative across all indicators, and downstream markets have become more negative on all indicators except for current and future order book volumes.

The growing confidence at the top of the chain, and the broadly higher confidence from producers suggests a shift in favour of sellers. This may be driven by expectations that currency rate movements and a potential negative impact on crude oil prices from the financial uncertainty could lead to a more favourable cost basis, encouraging higher domestic demand and exports.

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 indeces 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