Downturn continues as financial markets sink

D'turn 22Aug11.pngICIS pricing is a very valuable resource, particularly at market turning points. It highlighted the start of the current downturn in April, when reporting that buyers had moved to operating on a ‘hand to mouth’ basis.

Now, its market editors are highlighting the fragility of demand due to ‘economic uncertainty’.

This is the moment when buyers ought to need to order, as they return from the holidays:

• US retailers should be demanding rush orders for Thanksgiving/Xmas
• Auto companies should be seeing a flood of consumer enquiries
• Construction should be surging before the winter arrives

So far, the opposite is happening. US consumer confidence hit a 30 year low this month. Europe’s debt crisis is getting worse, and has spread to Italy. China and India are seeing more social unrest, with inflation far too high for comfort in both countries.

Of course, we still have 2 weeks to go, before September will reveal buyers’ true position. But ICIS’ Linda Naylor remains an excellent barometer of market conditions. And she reported a large PE buyer saying last week that “customers have been cancelling orders and everybody wants to sell.”

The chart shows the major surge in prices since January 2009, and highlights in yellow the downturn seen since April when IeC Downturn Alert began, with ICIS pricing comments below:

US S&P 500 Index (pink dot), up 26% overall since January 2009; but down 18% since April.
PTA China (red), up 96% since 2009; down 6% since April. Major plant and feedstock issues have led to only minor price rises recently as “the fragile macro-economic environment is weighing down sentiment”.
HDPE USA export (purple), up 97%; down 13%. “Buyers were waiting to make purchases amid the economic volatility”.
Brent crude oil (blue dash, right hand scale), up 141%; down 13%.
Naphtha Europe (brown dash), up 203%; down 15%. ” Demand remains poor from the gasoline sector and petrochemicals. The propane market is bearish with plenty of material available”.
Benzene NWE (green), up 335%; down 9%. “Widespread uncertainty surrounding the global economy, and the potential impact of this on the market, once players returned en masse from their summer holidays”.

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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