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Downturn Monitor approaches its anniversary

Chemical companies
By Paul Hodges on 23-Apr-2012

D'turn 20Apr12.pngIt is almost a year since the blog launched its IeC Downturn Monitor. The aim was to try and avoid the problems seen in H2 2008, when operating rates remained high down the value chain whilst demand fell.

The above chart shows the weekly changes in its 4 benchmark products from 1 January, with movements since 29 April highlighted in yellow. (The US S&P 500 Index and Brent crude were added later for comparison).

1 January to 29 April had seen major price increases:

Naphtha (brown dash) rose from $858/t to $1100/t
Benzene (green) rose from $1158/t to $1310/t
HDPE (purple) rose from $1257/t (57c/blb) to $1642/t (74.5c/lb)
PTA (red) rose from $1275/ to $1330/t
Brent (green) rose from $95/bbl to $125/bbl
S&P 500 (pink) rose from 1272 to 1364

Naphtha, HDPE and Brent had risen ~30%, whilst benzene was up 13%, the S&P 500 up 7% and PTA up 4%.

It is also probably fair to say that the blog was in a minority of 1 when calling the top of the market on 29 April. Its reasons were two-fold:

“There is growing anecdotal evidence, from chemical buyers and the main retailers, that we may have reached at least a temporary market peak. And Brent crude oil has been stable for 4 weeks at $125/bbl.

“Equally, since 1970, sustained periods of oil prices above $50/bbl in real terms ($2011) have always led to economic downturns. Some may hope that ‘this time it may be different’, but the blog prefers Einstein’s famous phrase that ‘the definition of insanity is doing the same thing over and over again and expecting different results’.B. “HDPE seems the most optimistic market, as its jump last week means it has matched the rise in Brent. But ICIS pricing report that “spot exports are becoming decreasingly viable” versus supplies from the Middle East, China and South East Asia. The price move therefore seems more supply-related than consumer-driven.

“Equally, the failure of both benzene and PTA to pass through the latest rise may turn out to be particularly significant.”Only PTA of the benchmark products has since been above its 29 April price – it reached $1340/t for just one week in September.

Next week, to mark the 29 April anniversary, the blog will review whether the downturn may be ending, as some now hope. For the rest of this week, in a special series, it will look at what chloralkali and PVC markets are telling us about demand trends.

ICIS pricing comments this week, and price movements since 29 April are:

PTA China down 13% to $1157/t. “Sentiment weakened in the later part of the week following softer polyester sales and lower buying interest from end-users.”
Naphtha Europe, down 9% to $1006/t. “Prices declined for much of the week, following the lead of crude oil”
HDPE USA export, down 6% to $1542/t (70c/lb). “Prices for US material were too high to work in most other regions”
Benzene NWE, down 5% to $1240/t. “Domestic supply levels have dropped and the wave of restocking has helped boost the prompt market”
Brent crude oil, down 5% to $118/bbl
S&P 500 Index, up 1% to 1378