High stocks lead buyers to hold back purchases

D'turn 19Jun11.pngBuyers’ behaviour has changed completely since the IeC Downturn Alert launched 7 weeks ago.

ICIS news reported Friday a large polypropylene consumer commenting:

“I am not buying a lot, just one or two trucks at a time. I kept a high stock level when prices were going up, so now I am using that up. Why would I buy now when I know prices will be lower in July?”

This is exactly the same behaviour seen in the previous 4 oil price-induced downturns, as the blog has warned continually. This time may not be different, after all.

Efforts by the investment banks to support crude prices also lost momentum last week, with Brent (blue dashed line) falling $6/bbl on Wednesday. They will need to come up with new arguments this week.

The chart summarises price changes since January. PTA China and European benzene have been the leading indicators of the downturn. They are highlighting general weakness in the global economy, which in turn has weakened the US S&P 500 stock index.

ICIS pricing reports suggest other products see similar trends developing:

PTA China (red), down 7%. “Sellers were in a hurry to offload their cargoes to reduce additional losses”.
Benzene NWE (green), down 4%. “The market was viewed as long, with demand for styrene slipping”.
S&P 500 (pink dots), unchanged.
Naphtha Europe (brown dashed line), up 8%. “Market was again oversupplied this week, with cargoes accumulating”.
HDPE USA (purple), up 18%. “Weak global market and aggressive pricing in Asia/Middle East contributed to sentiment that prices should fall”.

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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