The divergence between the real world and financial markets was sharply clarified last week:
• The world’s major stock index, the US S&P 500, hit a record new closing high of 1569
• Sadly, Europe’s 3rd largest PVC producer, Kem One, filed for bankruptcy
These developments are clearly not mutually supportive. As we enter Q2, either demand will suddenly return to chemical markets. Or financial markets will finally realise that central bank liquidity has not provided the promised recovery.
The chart above tells the story in the real world occupied by chemical companies. It shows annual European PVC production (blue line) and the export percentage (red line), based on data from Global Trade Information Services and Plastics Europe:
• Production peaked in 2008 at 7.4MT, and is now down 31%
• This is despite the export percentage rising from 9% to 20%
PVC is an excellent proxy for the construction sector, as its output goes into pipes, cables and house sidings. The statistics show no sign of any recovery in these critically important markets for the European economy. And US data tells a similar story (as the blog will discuss tomorrow), with its PVC exports over 40% of output.
The blog would naturally like to be proved wrong. But it fears it will be financial markets who finally wake up to reality during Q2. The chances of chemical demand suddenly recovering seem very low indeed. And chemical markets have always had a much better forecasting record than financial markets.
Benchmark price movements since the IeC Downturn Monitor’s April 2011 launch, and latest ICIS pricing comments are below:
PTA China, down 21%. “Persistently poor downstream polyester demand and high production inventories along the supply chain”
Naphtha Europe, down 20% “Naphtha supply is rising on the back of closed outbound arbitrages”
Brent crude oil, down 13%
HDPE USA export, down 11%. “Global prices continued to fall, as demand continues to soften. Chinese PE demand is lower than it was ahead of the Lunar New Year holiday, with trading coming to a near halt”
Benzene NWE, down 6%. “Sentiment has grown bearish in the region as demand slows down.”
S&P 500 stock market index, up 15%
