BASF warns on outlook; Dow warns on China, ethylene cycle

Economic growth

SHARE THIS STORY

ACC Jul5BASF and Dow Chemical both warned on the outlook when presenting their H1 results last week:

  • BASF CEO Kurt Bock warned, “We have for second quarter in the row in chemicals no growth worth mentioning . . . that is not a gratifying development.  We have the impression that there is little growth dynamic at the moment and our customers remain extremely cautious about building up inventories.”
  • Dow CEO Andrew Liveris warned, “”China remains a mixed bag. A very solid Q2 for us is not necessarily a harbinger of Q3“.  And he went on to add, “This is not yet a [peak of the ethylene] cycle discussion, but it’s starting to mimic one with outages.

Equally, as Reuters note:  “Dow has benefited from cheap U.S. shale gas.  This cheap fuel had given Dow a cost advantage over its European rivals dependent on crude oil-derived naphtha. But with crude prices slipping, that advantage is now eroding.”

Both major companies are thus confirming the message of the chart above, based on American Chemistry Council data.  This shows that global capacity utilisation (CU%) in May was just 83.5%.  Equally worrying is that the economic recovery created by the start of the stimulus programmes in 2009-10 has clearly weakened.  As a result, average CU% levels are down by nearly 10% – from an average of 93.4% between 1987 – 2008, to just 84.5% since 2009.

One key issue is that the recent rally in oil prices, and the major problems with force majeures, have not caused prices to increase further down the value chain. This confirms the underlying weakness in the market, as consumers are not able to pass through today’s higher prices to their customers.

China’s change of economic direction under its New Normal policies is, of course, the catalyst for this downturn. In the longer-term, this should be extremely positive.

But unwinding the problems of the past will be [painful in the short-term.  The Bank of England has already warned that China’s GDP growth may fall to 1.7% in Q4.   And whilst clearly some areas of the economy, such as the mobile internet, will likely continue to do well, it would be no surprise at all if China’s real GDP growth hit zero next year.

WEEKLY MARKET ROUND-UP
My weekly round-up of Benchmark prices since the Great Unwinding began is below, with ICIS pricing comments: 
Brent crude oil, down 47%
Naphtha Europe, down 47%. “Abundant naphtha supply (up 15%in June versus 2014) continues to exert pressure on prices”
Benzene Europe, down 39%. “Players noted that several fundamental factors are likely to weigh down on the market in the coming weeks”
PTA China, down 37%. “Producers continue to face squeezed margins in the market and low demand from polyester makers.”
HDPE US export, down 21%. “Trading was thin as buyers waited to see how low oil prices will drop.”
¥:$, down 21%
S&P 500 stock market index, up 6%

PREVIOUS POST

Speculators exit London's high-price property developments

24/07/2015

London house prices are one of the major faultlines in the debt-fuelled Ring of ...

Learn more
NEXT POST

China’s collapsing stock market underlines need for New Normal reforms

28/07/2015

My latest post for the Financial Times, published on the BeyondBrics blog is ...

Learn more
More posts
ACS Chemistry & the Economy webinar on Thursday
02/06/2021

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

Read
225 years ago today. The first ever vaccination – against smallpox, the great killer of the time
14/05/2021

The pandemic has reminded us of the critical role played by vaccination in our lives. Its impact beg...

Read
Supply chains set to transform as companies start to reshore
09/05/2021

Major new opportunities are starting to appear in today’s New Normal world, as I describe in a...

Read
Pandemic leads to ‘baby bust’ as births decline in most countries
18/04/2021

A year ago, many were suggesting the lockdowns might produce a “baby boom” as couples sp...

Read
Smallpox was the first vaccination to change the world – now we have a new opportunity to improve our lives
03/04/2021

Chart 1: Increased life expectancy led to a dramatic increase in GDP/capita The pandemic has reminde...

Read
COP 26 set to accelerate development of the 15-minute city
28/03/2021

One of the good things to happen in the pandemic over the past year is that ‘cooking has becom...

Read
China’s dual circulation policy aims to reduce debt reliance
14/03/2021

Every now and then, people wake up to the fact that debt is only good news when it adds to growth. O...

Read
UK set to take hard line on EU trade under David Frost
21/02/2021

The Brexit debate has always been about politics, not economics.  So it was no surprise that Decemb...

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