Great Unwinding sees prices tumble

Economic growth


GU 20Oct14World markets have seen major falls since the Great Unwinding of policymaker stimulus began 2 months ago.

Naturally, chemical markets have taken some of the biggest hits, given the industry’s role as a leading indicator for the global economy.  From today, the blog is therefore updating its regular chart (above) to focus on this impact:

  • The biggest loser has been PTA in China, down an extraordinary 26% since 18 August (red line)
  • Brent crude oil (blue) and naphtha (black) have seen similar falls – down 18% and 20%
  • Benzene has also tumbled, down 14% (green)
  • Only HDPE in the USA has been stable, due to the major capacity losses (red).  Its price is purely nominal, as no material is available for export

This pattern highlights the epicentre of the earthquake, China.  Its textile industry, like many others. is struggling with massive over-capacity.  This is probably already at 50%, and will get worse with more plants due to come online.

As oil and other commodity prices continue to fall, this will create a major deflationary shock around the world.  In turn, this will badly impact earnings for S&P 500 companies (purple).

This is why we are now starting to see increasing volatility in financial markets.  The Dow Jones Industrial Index was temporarily down 450 points at one moment on Wednesday.  And whilst the blog would like to believe this marked a ‘selling climax’, it fears it was just the first of many wild swings.

The start of the Great Unwinding has been very sudden.  Many people were on holiday when it began, and have yet to catch up with its causes.  As a result, they are still struggling to come to terms with what is happening, and how the various pieces of the jigsaw fit together.

This is why the blog has launched its new report, ‘The pH Report’.  It is delighted by the early reaction, and hopes that the Report will help companies and investors to survive the scary times that lie ahead.

One key issue, as initial reaction to the Great Unwinding also confirms, is that ‘conventional wisdom’ still rules in many businesses.  Many employees fear it would be a career-limiting move to challenge this ‘group think’.

The blog would ask you to take courage.  It may well prove critical for the very survival of the business that you tell the CEO, or at least your boss, that the world is likely to see very difficult times over the next 12-18 months.

If they continue to assume it will be ‘business as usual’, then your job will likely be at risk as well as theirs.  The Great Unwinding of policymaker stimulus in China and the West has only just begun.


The weekly round-up of Benchmark prices since the Great Unwinding began is below, with ICIS pricing comments:
PTA China, down 26%. ”Weak upstream demand in the crude and naphtha sectors was dragging down spot PTA prices, while sentiment remained largely bearish”
Naphtha Europe, down 20%. “Prices fell below $700/tonne for the first time since June 2012, on a rapid erosion in upstream Brent crude and weak fundamentals.”
Brent crude oil, down 18%
Benzene Europe, down 14%. “A sudden upturn towards the end of the week, while supported by a recovery in energy numbers, was largely driven by limited liquidity in the European market and some short position covering.”
S&P 500 stock market index, down 4%
HDPE US export, up 4%. “All said that US prices remained too high to compete with Asian and European values.”


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