Market volatility hits new peaks

Economic growth

SHARE THIS STORY

D'turn25May12.pngPetchem markets provided a perfect case study of Volatility last week, confirming the blog’s view that we are heading into a VUCA world where Volatility, Uncertainty, Complexity and Ambiguity will dominate.

This was also real volatility, where prices crashed downwards and surged upwards at the same time. And it involved 2 of the ‘building block’ products, butadiene and benzene, not small volume derivatives.

Butadiene saw the biggest moves. The blog has lost count of the number of analysts who have suggested that prices will remain at a ‘permanently high level’, and even justify on-purpose production. Instead, it appears that buyers have simply disappeared.

US butadiene contract nominations thus fell an astonishing 27% on Friday. Whilst in Europe, the June contract price fell €400/t (18%). Benzene, on the other hand, showed the risks of having low stocks in a falling market. Plant problems saw European spot prices jump 20% ($200/t).

The butadiene problem is twofold:

• Inventories are high down the value chain, as buyers bought forward when crude/feedstock prices were rising
• Now, demand is disappearing, as they fear that oil and feedstock prices will continue to weaken

As Dow’s CFO Bill Weideman noted “quite a few (buyers) are holding off, I should say, to buy in anticipation of lower prices.”

Benzene, as always, is highlighting the next round of problems. A sudden, 20% price increase cannot be passed on in today’s market. So demand will be further reduced, creating the potential for even more volatility in the future.

UK statesman Harold Macmillan best summarised today’s situation when asked in the 1960s what kept him awake at night. “Events, dear boy, events” was his reply.

None of us know what combination of political, social and economic events are ahead of us. The only certainty is that a return to the BabyBoomer-led economic supercycle between 1982-2007 is increasingly unlikely.

The chart shows benchmark price movements since the IeC Downturn Monitor”s 29 April 2011 launch, with latest ICIS pricing comments below:

Naphtha Europe (brown), down 24%. “Demand remained mediocre. The Asian market is weak, while in Europe, there has been little interest from petchems and gasoline”
PTA China (red), down 20%. “Most Asian plants have completed maintenance work in April-May. At the same time, downstream polyester demand remained slow. ”
HDPE USA export (purple), down 18%. “Interest remains weak as falling crude and naptha prices have led global buyers to expect a significant price drop next month”
Brent crude oil (blue dash), down 14%
S&P 500 Index (pink), down 3%
Benzene NWE (green), up 8%. “Production problems with at least two aromatics units drove the prompt market up sharply”

PREVIOUS POST

A is for Ambiguity

26/05/2012

Today the blog ends its review of the VUCA world with A for Ambiguity. The globa...

Learn more
NEXT POST

PE demand decline highlights China risks

29/05/2012

China’s slowdown is continuing to gather pace. Polyethylene (PE) demand ha...

Learn more
More posts
‘Watch out below!’ as supply chain chaos comes to an end
14/11/2021

“What goes up, comes down” is usually a good motto when prices start to reach for the sk...

Read
Industry now needs to step up, if Net Zero is to be achieved
31/10/2021

Net Zero is clearly the key issue of our time. With COP26 about to start, 3 key elements need to com...

Read
The Fed’s stock market bubble is at risk as China bursts its real estate bubble
24/10/2021

The US stock market bubble just keeps rising. And every investor “knows” that the US Fed...

Read
EU patience starts to run out as UK threatens to break the N Ireland Protocol
17/10/2021

Unsurprisingly, it turns out that Brexit still isn’t “oven-ready”, despite the UK ...

Read
An end to the China bubble would risk a Minsky moment
05/10/2021

My letter in today’s Financial Times warning of the risk to Western financial markets from the bur...

Read
Xi aims to “bring order out of chaos” by bursting China’s property bubble
03/10/2021

China is at the start of its biggest economic shake-up since 1978, when Deng Xiaoping launched his p...

Read
Housing markets face long-term downturn as central banks abandon stimulus
05/09/2021

Last month saw the beginning of the end for the central banks’ 20-year experiment with stimulu...

Read
Businesses set for transformation as supply chain chaos combines with Net Zero targets
15/08/2021

‘Business as usual’ seems a most unlikely outcome as we look forward over the next 6 months....

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more