BASF sees “weak demand”, traders see recovery

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BASF, the world’s largest chemical company, said today that they see “weak demand for chemical products” continuing through 2009. In response, plants and sites “will be closed or sold where necessary”. These are clear statements about the outlook, backed up by commitments to take action.

Yet volumes and prices in financial markets are rising, as traders “look through to the recovery”. Nowhere is this more evident than China where, as the chart shows, April volumes in Linear Low Density Polyethylene (LLDPE) soared to 77 million tonnes, 3 times total annual world production. In turn, prices rose 21% over the month.

CEOs have some tough decisions ahead of them. Do they follow the BASF example, and start closing capacity? Or do they listen to the siren voices of the traders, promising that all will soon be back to normal?

The blog continues to believe that fundamentals matter in the end. Key chemical markets such as construction, autos, and electronics seem to be stabilising. But they show no signs of real recovery. BASF are making the right decisions, difficult though these are.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. He also serves as a Global Expert for the World Economic Forum. The aim of this blog is to share ideas about the influences that may shape the chemical industry and the global economy over the next 12 – 18 months. It looks behind today’s headlines, to understand what may happen next in critical areas such as oil prices, China and Emerging Markets, currencies, autos, housing, economic growth and the environment. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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