IMF warns of lower global growth

Economic growth


D'turn 6Jul12.pngOnce again, the chemical industry has performed its role as a reliable leading indicator of the global economy.

On Friday, the IMF warned their next forecast:

“Will be tilted to the downside and certainly lower than the forecast that was published three months ago”

This will not be news to blog readers. As the chart above shows, chemical markets peaked on 29 April 2011. They staged a temporary rally from December – March, as policymakers pumped more liquidity into the markets and pushed up crude oil prices again.

But these efforts were self-defeating, as they addressed symptoms not causes. Higher oil prices have actually destroyed the very demand that the policy was supposed to create. And by adding more debt, quantitative easing has further lowered future growth prospects.

Thus prices for the benchmark products have not recovered to the levels seen before April last year, as the yellow shaded areas confirm. The only marginal exception has been benzene. And even it is the exception that proves the rule.

Recent plant problems have certainly pushed prices higher in the short-term. But these higher prices cannot be passed through downstream, and have served only to further reduce demand in the medium-term.

Benchmark price movements since the IeC Downturn Monitor’s 29 April 2011 launch, with latest ICIS pricing comments, are below:

HDPE USA export (purple), down 29%. “Buyers stress that they see no reason to pay more for July exports than they had in June”
Naphtha Europe (brown), down 27%. “Demand from the petchem industry remains subdued, with LPG still priced significantly below naphtha”
PTA China (red), down 26%. “Sales rally was considered by some polyester makers as speculative buying by downstream textile industry”
Benzene NWE (green), down 4%. “Some derivative producers may scale back output because of the high cost of benzene and ongoing weak demand both in Europe and Asia”


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