Europe chemicals prices, stocks mixed as US stimulus effect starts to peter out

Author: Jonathan Lopez


LONDON (ICIS)--The unprecedented US $2,000bn fiscal stimulus’ effect on investors began to peter out on Wednesday and European chemicals prices, commodities and stocks had a mixed day.

US leaders agreed on Tuesday a package aimed at helping households and corporates through the shutdowns imposed to stop the coronavirus spread.

The New York Stock Exchange (NYSE) posted its largest increase since 1933, up more than 11% compared to the previous close, an optimism also showed by investors in Asian trading hours on Wednesday.

In Europe the picture was more mixed, however, as the region has not reached the peak of the pandemic and is currently its epicentre.

Most countries have imposed quarantines, and their economies have come to a standstill.

With the automobile industry currently out of production in most of Europe, petrochemicals are set to feel the pinch from a sector to which the industry sells around 20% of its production.

Another key petrochemicals end market, the construction industry has asked the EU’s executive body the European Commission to declare a “force majeure status” for the sector so companies could avoid penalties that end in breach of contract due to the coronavirus crisis.

With those two sectors at near-standstill and consumer spending on hold as stores across Europe remain shut, petrochemicals prices are set to continue to suffer.

Europe benzene spot prices, for instance, posted their ever largest intraday fall this week.

On Wednesday, however, it closed higher, as well as naphtha, while styrene fell slightly.

But the outlook for most markets is grey. Butadiene (BD) demand outlook, which is concentrated in the automobile industry, is bleak according to market participants this week.

Crude oil started Wednesday trading in Asia losing ground but recovered as the day went by, closing in the European afternoon up $0.40/bbl to $27.55/bbl.

The European chemicals index Stoxx 600, with the largest chemicals producers listed, barely moved on Wednesday, trading near the close of the session up 0.06%.

Within the index, however, BASF and Evonik, two of Germany’s largest chemicals, both lost 2% in value compared to Tuesday as analysts agree a recession is likely in the manufacturing-intensive, export-oriented country.

Germany’s main stock DAX was up 1.79% on Wednesday, but that marginal increase compared with sharp rises for other bourses – Paris CAC 40 up nearly 9.5% and London's FTSE 100 up nearly 4.5%.

The pandemic in Europe has not reached its peak yet, and investors and analysts are scratching their heads about the potential extension of shutdowns across Europe and when normally activity will resume.

Moreover, the World Health Organization (WHO) warned this week that the US is set to become the epicentre in a matter of weeks, which would have negative influences across the global economy.

Analysts at London-based Oxford Economics said on Wednesday their analysis based on China’s coronavirus outbreak suggested economic activity could contract in Europe between 5% and 32%, depending on the lockdowns' length.

“We estimate that a three-week lockdown affecting 50%-90% of a population would cut consumption in the three-month period featuring such a lockdown by 5%-8%, a six-week lockdown would cut consumer spending by 9%-16%, and a 12-week lockdown would slash it by 18%-32%,” they said.

“Full-year effects depend on how quickly postponed consumption revives as outbreaks come under control. But even quick recoveries imply big full-year losses: An initial 18% slump in consumption would still imply a full-year loss of 9%, even if spending recovered to pre-pandemic levels in four quarters.

“If recovery took eight quarters, the full-year loss would be an enormous 14%."

Earlier on Wednesday, Asian stock markets and crude defied gravity though on the ground the reality was that the region's second biggest emerging economy - India - announced a complete lockdown for 21 days halting petrochemical trades in the country.

Asia's naphtha price spread, a measure of its refining margin and currently languishing at 18-year lows, has fallen to negative territory amid bearish market conditions.

Focus article by Jonathan Lopez