The trend is your friend until it isn’t – part 2

Economic growth


Brent Jan14

“May you live in interesting times” is a Chinese proverb which has an alternative meaning as a curse.  And the blog suspects this duality of meaning may start to make a lot of sense as we go through 2014.

We have, after all, been in a very strange world for the past 5 years.  Markets have lost their role of price discovery, due to the weight of stimulus money being pumped out by governments.  Thus as the New York Times (NYT) notes, the S&P 500 – the world’s most important stock market index, has just finished a most unusual period:

  • It closed at 1,257.60 on 31 December 2011, and never dropped below this level in 2012
  • It closed at 1426.19 on 31 December 2012, and never dropped below this level in 2013

This has only happened twice before in history, in 1975-76.

But it won’t be happening in 2014.  It closed at 1848.36 on 31 December 2013, but fell when the market re-opened on 2 January and is still below this level.  And as the NYT comments:

“It symbolizes the lighter-than-air quality of the stock market over the last two years. Now, with stock valuations beginning to be stretched and the Federal Reserve starting to taper its loose monetary policy, an enchanted time for stock investors may be coming to an end.”

Another does of realism, this time about US shale gas and ethylene markets came last week from Stephen Pryor, president of ExxonMobil Chemical, when noting:

The reality is the US from a chemical standpoint is a very mature market. We have some demand growth domestically in the US but it’s a percent or two, it’s not strong demand growth,” Pryor said, adding that polyethylene hardly grew in the US in a decade.  “That is not going to change…..

“Asia remains at the bottom of the cycle. We’ll be in a challenging environment for a while and the extent to which the shale phenomenon [in the US] will add to that challenge – that’s a fact of life too.”

This confirms the blog’s strongly expressed warnings since August, when it wrote that:

US 2012 ethylene production was still below SuperCycle levels, as were volumes for the two major derivatives – polyethylene and PVC.  This highlights how lack of demand will make it very difficult to justify all the currently planned expansions.”

When markets are in an “enchanted time”, nobody bothers about reality, by definition.  Instead everyone knows “things are different this time”, and that the most important thing is to follow the trend as quickly as possible.

But now we are leaving this “enchanted time” and instead probably heading into “interesting times”.  Nobody can argue with Pryor’s analysis.  And it will surely lead to much head-scratching amongst senior executives and fund managers in the weeks to come.  “How did we miss this?”, they will ask themselves.

Equally, the chart above of Brent prices suggests oil’s “enchanted time” may also be ending.  How much longer will investors choose to ignore the reality of rapidly increasing supply, weak demand growth and high levels of inventory?  Oil’s return to reality could be painful indeed for anyone assuming $100/bbl prices would last forever.

The triangle shape is now very narrow indeed, suggesting a breakout – either higher or lower – is getting close.  And as the blog warned last month, the trend is your friend, until it isn’t.

Benchmark price movements since January 2013 with ICIS pricing comments are below:
PTA China, down 17%. “Operating rates have started to be adjusted down to ease the oversupply, especially in the key China market”
Benzene Europe, down 7%. ”Continued high pricing in the US is helping support the European market”
Brent crude oil, down 4%
Naphtha Europe, down 1%. “Arctic chill and subsequent refinery outages in the US raised expectations of increased demand from the gasoline sector”
HDPE USA export, up 14%. “ In Asia, many plastics processors are unwilling to build up inventories ahead of the week-long Lunar New Year holiday. However, there is interest from South America”
US$: yen, up 19%
S&P 500 stock market index, up 26%


Deflation gets closer in Europe, USA and China


Demographics drives demand.  If it doesn’t, then its hard to think what d...

Learn more

Brazil, Russia, India car sales fall for first time in 10 years


Since 2009, the 4 BRIC nations (Brazil, Russia, India and China) have been the f...

Learn more
More posts
Businesses face “biggest imposition of red tape in 50 years” as Brexit begins

Most companies had closed when the new EU-UK Trade and Cooperation Agreement (TCA) was finally annou...

Your A to Z Guide to the reality of Brexit after 31 December

(Picture credit Shutterstock) A.  Article 50 of the Lisbon Treaty set out the rules for leaving ...

Chemistry & the Economy webinar on Thursday

Please join me for the next ACS Chemicals & Economy webinar on Thursday, at 2pm Eastern Standard...

Pandemic redraws the map

  Companies have entered a new landscape where the coronavirus has accelerated major paradigm s...

What will happen if President Trump loses the election?

I spent from September 2015 onwards, during the last US Presidential election, trying to explain why...

Covid fears risk a Great Depression and major social unrest

Governments spent most of February/March ignoring my warnings here on the dangers posed by the Covid...

The state of the global economy in 2020

Last Wednesday, I gave the opening presentation for the ICIS PET Conference and looked at whether th...

Reality dawns for business as No Deal Brexit approaches

I warned before the June 2016 Brexit referendum that Brexit was all about politics, and Boris Johnso...


Market Intelligence

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

Learn more


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