LONDON (ICIS)--Nervousness about Europe’s manufacturing economy and the rising crude oil price colour the petrochemicals outlook at the start of the fourth quarter.
Petrochemical prices have struggled to keep pace with rising oil-based feedstock costs and margins are under pressure.
Economic sentiment has ratcheted down on the US-China trade war and the collapse of the Turkish lira.
And, while the eurozone appears to be performing relatively strongly, there are concerns about the outlook in Germany which relies so heavily on its export-driven manufacturing sector.
Weak foreign trade was a drag on eurozone growth in the first half of the year. GDP growth reached 0.4% in both the first and second quarters, compared with an average of 0.7% in 2017.
Economic indicators are above their long-term average but suggesting a slowdown.
According to the European chemicals trade group Cefic, chemicals production was up 0.6% in January-July 2018. Producer prices were up 3% over the same period, reflecting the rise in energy prices over the period.
EU chemicals exports to China were down in the first half but imports from China were up “significantly”, the regular economics report for Cefic said, at €7.8bn in the first half, from €6.7bn in the first half of 2017.
Pre-European Petrochemical Association (EPCA) meeting roundups from ICIS reflect the nervousness in various markets ahead of the industry’s largest event in Europe.
Some are lengthening at a time of increased trade uncertainty. Trade flows are having to shift to accommodate the tariffs being applied by the US and China on their bilateral trade.
Upcoming sanctions against Iran also weigh on petrochemical markets, with the oil price expected to trend higher towards the year end.
ICIS data have reflected this week the struggle producers have to pass on higher oil-related costs following a period of very strong sales growth.
In benzene in Europe, for example, there is an ongoing tussle between market length and the oil price, critical factors towards the end of the year.
Other markets could be described as ‘stable to soft’, with some surprise expressed about the lack of demand.
A soft third quarter for polyethylene has ethylene producers concerned.
New US production volumes are not having much influence in Europe yet, but are more than likely to in 2019.
A heavier-than-normal cracker turnaround season in the spring of 2019 may cause headaches, but producers have planned for the disruption.
A changing cracker feedstock slate has put pressure on propylene availability and that will make supply/demand picture even more interesting in the first half of next year.
The annual EPCA meeting runs in Vienna on 8-10 October.
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