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Petchem volumes slide in all 3 major regions

Chemical companies, Consumer demand, Economic growth, Futures trading, Oil markets
By Paul Hodges on 30-May-2011

Satchell May11.pngVolume is a key driver for chemical company profits. High volume means operating rates increase, reducing unit costs. Companies also gain more pricing power.

But when volume is low, the reverse happens.

Thus the above chart from leading analyst Paul Satchell of Collins Stewart is telling an important story. It shows:

• Volumes were very strong from December, as buyers bought forward ahead of price increases
• But since mid-May, he is seeing “a sharp downturn” as buyers start to destock again down the value chain

Satchell says this trend is common across all 3 major consuming regions, and all 3 major petchem groupings:

• Asia is the weakest region, followed by Europe and the USA
• Aromatics are weakest, followed by olefins and polymers

Satchell concludes that “material weakness is volume has begun“, with the most likely cause being destocking. He adds that “there are real risks to actual volumes traded in the short-term“.

Satchell’s analysis supports the blog’s own belief that we are following the path of 1973/4, 1979/80, 1990/1 and 2007/8. As oil prices plateau, we first see buyers destock to a supposedly more ‘normal’ level of inventory. This will probably last over the summer period.

Then, from September, we may well find, much to our surprise of course, that higher oil prices have actually reduced demand – just as they have always done in the past.