Europe chems prices start Q2 on weak footing, stocks down on poor sentiment

LONDON (ICIS)–The European chemicals market enters the second quarter on a bitter note, with stocks down on Wednesday against a weak economic backdrop, countering any bright spots noted in Asia.

BP said on Wednesday will write down $1bn on its first quarter results in response to the erosions in the oil and gas market caused by the coronavirus.

Stock levels for many chemicals companies receded on Wednesday from minor gains made on Tuesday, and pessimism looms large at a time of year which is traditionally strong for the industry.

The Stoxx 600 index for major listed chemicals companies in Europe fell by 3.34% on the previous day, with losses recorded consecutively across European financial markets.

London’s FTSE 100, Germany’s DAX and Paris’s CAC 40 fell 3.83%, 3.94% and 4.30%, respectively, at closing.

Disrupted supply chains highlighted the slowdown of global production in the eurozone’s deteriorating PMI index for manufacturing, which sank to lows last seen in 2009.

Typically, lack of supply would indicate good demand, eroding stock levels, but March’s supply disruptions had more to do with widespread shutdowns that  disrupted usual trade flows for this time of year.

Manufacturing in the US has also hit a snag as it recorded the steepest decline in output since August 2009 in March PMI readings.

China has crested the epicentre of the virus, according to authorities in the country, and new infection rates are modest in comparison to those in Italy and Spain.

Although China’s market is returning, the country’s petrochemical index nosedived in March on the back of crude levels ratcheting down in February.

Crude level slumped after a slight recovery, which is now translating to price deterioration in the chemicals markets.

Styrene contract prices in Europe were slashed to levels last recorded in February 2009, following the crash of aromatic feedstock benzene to record lows of at the end of March and April contracts in the olefins chain also tracking steep declines.

Further derivative materials have started to track similar levels, with propylene oxide (PO) April contract echoing declines on the upstream propylene market.

These early settlements indicate that significant decreases could continue to be recorded in many downstream markets.

Losses could be minimised for some materials, as demand for products with specific applications (food packaging and detergents) prevent total price collapses.

Focus article by Morgan Condon

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