USpolyesterfibre

By John Richardson

AS the euphoria over the Fed’s measured tapering echoes through global equity markets, many people at certain points on the continuum – which we described in detail earlier this week – will be happy.

Perhaps for the next few quarters, stock markets will remain buoyant because of the measured tapering of bonds purchases and the prospect of exceptionally low interest rates until at least the end of 2015.

Oil prices also rose yesterday as a result of not only the Fed’s decision, but also what some analysts say are stronger fundamentals.

But if you make things please be very careful out there.

We worry that, as bond purchases are further tapered by the Fed, and as China more aggressively tackles its out-of-control credit growth, the real fundamentals will become much more important.

Why is that, despite the huge amount of stimulus pumped into the global economy by Western central banks in general, demand in many developed chemicals markets remains below pre-crisis levels?

We have illustrated this point with ethylene in the US and benzene in Europe during our coverage this week.

Both of these basic petrochemicals are, of course, pretty good proxies for demand as a whole as they make a wide range of petrochemical derivatives and then onwards to manufactured goods.

See the above chart showing polyester fibre consumption in the US as another example.

And why is that the “trickle-down effect” isn’t working? If stimulus had been effective, then everybody would be benefiting, not just mainly – and disproportionately –  the small number of people who trade in oil, other commodities and equities. This small number of people can never buy enough things made from petrochemicals to fully sell-out a new world-scale complex.

“No problem, we can export it to Asia,” might be your response. But the Southeast Asian petrochemicals industry will do what suits the Southeast Asian petrochemicals industry, which might well entail a much-stronger regional trading bloc.

Also, as one industry source said to us yesterday: “As China moves more towards self-sufficiency in key ethylene derivatives, such as polyethylene (PE), I think they will become more protectionist.”

In addition, why is it that many companies in the West, despite record-low interest rates that have dramatically improved their financial position, remain reluctant to invest in new capacity and new hires?

We think we know the reason.

As your chemicals company sets its targets for 2014, you might still think this is not relevant as the demographic impact we are persisting with might seem like a “slow burn”, one that will take decades to impact your business.

But the fact that demand is still weaker than before the global crisis indicates that the demographic effect has already begun.

And now that the Fed has set a firm outline of its tapering plans over the next few years – and with China also firmly committed to stimulus withdrawal – the tide is going out.

Only then we will discover which companies have been swimming naked – without a contingency plan.

PREVIOUS POST

China's Silver Lining: Blue Collar Wage Increases

19/12/2013

By John Richardson HOW useful a tool is GDP in measuring petrochemicals demand g...

Learn more
NEXT POST

China's Latest Credit Crunch: What It Says About 2014

23/12/2013

By John Richardson CHINA continues to cross the river by feeling the stones and ...

Learn more
More posts
Petrochemical feedstock purchasing managers: What to think about and what do next
27/03/2020

By John Richardson ALL THE old assumptions about how oil, feedstock and petrochemicals markets work ...

Read
Vital work to maintain petrochemicals supply for essential services must continue
26/03/2020

By John Richardson INDUSTRY associations around the world are lobbying governments about the importa...

Read
Polyethylene: How to plan sensibly as we face threat of new Global Depression
25/03/2020

By John Richardson I SINCERELY want to help you guys. That’s what I am here for. To this end, here...

Read
Coronavirus may take as much as two years to be brought under control
22/03/2020

By John Richardson The only honest answer is that none of us know how events will turn out because o...

Read
Coronavirus: The new ten-point guide for the petrochemicals industry
20/03/2020

By John Richardson EARLIER THIS month I provided you with a ten-point guide for the impact of corona...

Read
Container freight shortages will lead to regional petrochemicals trade and supply shortages
17/03/2020

By John Richardson THIS excellent chart highlights the lingering effects of the coronavirus outbreak...

Read
European polyethylene and coronavirus: Panic buying versus the real demand outlook
16/03/2020

By John Richardson NOW that the epicentre of the virus has moved to Europe, we need to think through...

Read
Big declines in Chinese polyethylene imports, a global recession and a financial crisis
13/03/2020

By John Richardson YOU MIGHT be hoping that sanity will be restored after the “most expensive spee...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more