Since the global financial crisis of 2008-2009, worldwide economies have had one of their longest periods of expansion. However, macro risks are rising on multiple fronts. Here we track key leading economic indicators, including those specific to the chemicals sector, to alert you to important shifts in trends that could lead to the next recession.
See views from our wide bench of ICIS chemical market experts, from John Richardson, Nigel Davis, Will Beacham, Joseph Chang, Al Greenwood and more. Plus Paul Hodges, chairman of International eChem, weighs in.
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The manufacturing PMIs (Purchasing Managers’ Indexes) are a key leading indicator of manufacturing activity. Here we track the key regions of the US, Eurozone and China. Any reading over 50 indicates expansion, while under 50 indicates contraction.
Europe is showing profound weakness, with a March reading of 47.5 - the lowest level since April 2013. China has rebounded to 50.8, now in expansion territory after two months in contraction. The US is still at healthy levels with a higher PMI of 55.3.
Global and regional IPEX data are available here.
The ICIS Petrochemical Index methodology is available here.
The ICIS Petrochemical index tracks the movement of 12 major petrochemicals and polymers: ethylene, propylene, butadiene, benzene, toluene, paraxylene (PX), polyethylene (PE), polypropylene (PP), styrene, polystyrene (PS), methanol and polyvinyl chloride (PVC) with the regional indexes weighted by capacity.
The Global IPEX edged higher in March as oil price rises in February fed through into contract prices for olefins and aromatics in northwest Europe. The Northwest Europe IPEX was up 2.81% as a result while the indexes in other regions marked time.
The ITC storage terminal fire in the US in mid March had a major impact on aromatics prices, toluene particularly, with some knock-on effect in Europe.
Price increases in March were driven by:
• Fire at a major terminal in Deer Park, Texas, disrupted aromatics markets and other product markets later due to Houston Ship Channel congestion
• Northwest Europe benzene prices up largely on higher crude prices and re-stocking
Price decreases in March were driven by:
• Northeast Asia down on ample supply
• US ethylene down on lower ethane and butane prices
• US propylene down on supply length. Strong production from crackers processing heavier natural gas liquids (NGLs)
The American Chemistry Council’s (ACC) Chemical Activity Barometer (CAB) is a leading macroeconomic indicator to highlight the peaks and troughs in the overall US economy and illuminate potential trends in market sectors outside of chemistry. The barometer is a critical tool for evaluating the direction of the US economy.
The CAB rose 0.1% in March on a three-month moving average basis, the first gain in five months. On a year-over-year basis, the CAB was down 0.3%.
“The CAB continues to indicate gains in US commercial and industrial activity through mid-2019, but at a markedly slower rate of growth, as measured by year-earlier comparisons,” said Kevin Swift, chief economist at ACC.
International eChem’s Volume Proxy is a leading indicator tracking changes in chemical and polymer spot prices to anticipate volume trends. While most chemicals trade is conducted on a contract basis, changes in overall demand have a leveraged impact on spot demand, and thus spot prices.
Companies should have been rebuilding stock after end-year destocking - especially given that the oil price has risen by nearly a third since its year-end lows,” said Paul Hodges, chairman of International eChem. Stock-building should also have been supported in Europe by the prospect of 2019 being a major year for maintenance shutdowns and Brexit. Yet in reality, the outcome has disappointed, confirming our sense of significant weakness in downstream industries.