Benzene challenges financial markets’ rosy view of the outlook

Consumer demand

SHARE THIS STORY

D'turn 19Oct13

This is Budget week, when the blog prepares to present its Budget Outlook for 2014-16.  On Saturday, it reviewed its 2012 forecast.  And starting tomorrow, it will analyse auto markets – as these are the largest single driver of demand – before issuing its 2014 Outlook next Saturday.

The chart above presents the dilemma facing companies, as they try to map out the future.  It shows two key prices:

  • The S&P 500 (purple), the world’s most important financial market
  • Benzene (green), historically the most reliable leading indicator for future economic growth

Clearly, they are telling completely different stories.

Long-standing readers will remember benzene’s unique performance in 2008, when it successfully called both the top of the market in March, and then the bottom in November*.  So it would be tempting fate to simply ignore its performance this year, when its price has already fallen 22%.

On the other hand, the S&P 500 has delivered an equally stunning performance, and is up 19% since January.  This is particularly impressive given it has been delivered against a backdrop of weak/weakening growth in all the major economies and regions.

So what are we to believe about the future outlook?

Financial markets always claim predictive powers, and so most analysts suggest the S&P 500 is ‘looking through’ today’s problems to a sunlit future ahead.  They believe the genius of the central banks with their stimulus programmes has created a firm foundation for strong future growth.  And they dismiss suggestions that the stimulus has in fact just had a circular impact, supporting asset prices through the availability of cheap finance.

Fans of benzene, however, counter that it has a much sounder basis for prediction, as the blog summarised in the Financial Times in March 2012.  It is noteworthy that PTA prices, also cited in the FT as an indicator for China’s economy, are also down 14% this year.  This suggests that whilst central banks are keeping asset prices strong, it has become increasingly difficult to pass on today’s higher energy/food prices as consumers are forced to cut back.

It is hard to imagine two more contradictory views.  One suggests that central banks have rescued the global economy.  The other, that they have unintentionally made an already bad situation much worse.

Readers will, of course, make up their own minds.  But the blog’s money is, as always, on benzene.  And there is certainly support for this position from Coca-Cola, one of the world’s most successful consumer products companies.  Last week it reported revenues down 2% in 2012, with Q3 down 3%, whilst its CEO told investors:

“As we have all noted, emerging markets have become increasingly more volatile,  further exacerbating a challenging global landscape. Hence, disposable income  and consumer spending have become challenged and consequently have impacted the  overall growth of the non-alcohol ready-to-drink industry”

Latest benchmark price movements since January with ICIS pricing comments this week are below:
Benzene Europe, down 22%. ”Prices dipped to fresh yearly lows this week, alongside losses in both the US and Asia, as well as low domestic derivative offtake so far this month”
PTA China, down 14%. “Prices fell for the fifth consecutive week because of a supply glut.”
Naphtha Europe, down 2%. “Fundamentals are weak as oversupply and flat demand persist”
Brent crude oil, down 2%.
HDPE USA export, up 16%. “Globally, demand is weak. Availability of product for export remains very limited, and prices are too high for most markets”
US$: yen, up 11%
S&P 500 index, up 19%

* For those interested, prices fell 32% in 8 weeks, after the ‘market top’ call in August 2009

PREVIOUS POST

2014 Budgets need to abandon hopes of Supercycle return

19/10/2013

Next week the blog will publish its 6th annual Budget Outlook, covering the 201...

Learn more
NEXT POST

China's auto sales rise as bank lending booms

22/10/2013

Autos are now the largest single manufacturing industry in the world.  Not only...

Learn more
More posts
Hertz goes bankrupt as non-essential consumer demand disappears
24/05/2020

The US Federal Reserve has now spent $7tn bailing out Wall Street. But it couldn’t save the 10...

Read
Smartphone sales head into decline as affordability becomes key
10/05/2020

The smartphone sales decline accelerated in Q1, as Strategy Analytics report: “Global smartpho...

Read
China’s plastic ban and recycling launch marks end of ‘business as usual’ for plastics industry
26/01/2020

Paradigm shifts start slowly at first, and it is easy to miss them. But then one day, they suddenly ...

Read
Automakers face stiff headwinds in big emerging markets
19/01/2020

Brazil, Russia, India and China disappoint as manufacturers face investment demands of EVs © Bloomb...

Read
Portugal shows the way to climate neutrality by 2050
24/11/2019

“If you don’t know where you are going, any road will do”. The Irish proverb’...

Read
The next billion phone users will be buying $10 smart feature phones, not $1000 iPhones
10/11/2019

Smartphone sales plateaued in Q3, down 9% since Q3 2017’s peak of 1.55bn, as the chart shows....

Read
Companies ignore the Perennials 55+ generation at their peril
13/10/2019

Nearly a third of the the world’s High Income population are now in the Perennials 55+ generat...

Read
Auto markets set for major disruption as Electric Vehicle sales reach tipping point
21/09/2019

Major disruption is starting to occur in the world’s largest manufacturing industry.  Hundred...

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