Europe chems stocks fall slightly amid grim economic data

LONDON (ICIS)–European chemical stocks fell slightly on Wednesday amid fresh waves of economic and sectoral data emerging that indicated the extent that demand had fallen in April.

Despite company share prices ticking down in line with general markets, spot trades in building block chemicals in Europe largely firmed through the day in spite of economic data highlighting the near-historic extent of economic collapse.

Petrochemicals traders in Europe are eyeing the continuation of easing lockdown measures as an indicator of gradual improvements in demand.

RUSSIA DRIVES FIRMING CRUDE
Petrochemicals pricing was also buoyed by a modest rally in crude prices that has pushed Brent crude futures above $30/bbl and WTI to over $25/bbl just weeks after the US benchmark hit negative pricing.

The fillip for oil was also driven by remarks from Russian lawmakers that the country is focused on strong compliance with the substantial production cuts it had agreed with OPEC+ member states, after walking away from a deal entirely earlier in the year.

The world’s largest oil power has committed to cutting production by 2m bbl/day through May and June as part of the production cut deal agreed on 10 April, estimated at a fifth of its output.

Although the extent of the cuts – 10m bbl/day in the first phase – is regarded as unlikely to fully mitigate the extent of the demand shortfall this month, estimated at 26m bbl/day by the International Energy Agency (IEA), the fact that curtailments are now coming into effect after six weeks of unconstrained production amid the worst demand environment in the industry’s history has buoyed pricing.

Speaking to state news agency Interfax at the close of April, Russia’s head of the Ministry of Energy Alexander Novak stated that compliance with the agreement will be 100%, with all producing companies agreeing to commitments.

NO LET-UP IN ECONOMIC CLOUDS
The impact of lockdowns and production curtailments from client industries is starting to coalesce into clearer projections for European chemicals demand, with total propylene consumption expected to fall 3-4% this year, according to ICIS forecasts.

The Stoxx 600 index of listed European chemicals firms was trading down 0.23% as of 15:50 BST, amid afternoon losses  of 0.36% for the DAX, 0.45% for the CAC 40 and 0.19% for the Euronext 100 index.

The UK’s FTSE 100 was trading up 0.54% on the back of statements by Prime Minister Boris Johnson that some lockdown measures in the country could be eased as early as 11 May.

Johnson is expected to comment on the latest measures over the weekend, as the country’s death count from the virus becomes the largest in Europe and second-largest in the world.

Weaker share prices follow the release of final composite eurozone purchasing managers’ index (PMI) data showing that manufacturing and  service sector output in the bloc fell to 13.6 in April. PMI figures of above 50.0 indicate growth.

Further grim clarity emerged on the extent of the demand shortfall in key end markets, with the UK’s construction sector PMI falling to 8.2 in April, compared to 27.8 in February 2009, the nadir of the global financial crisis.

Automotive sector demand in the country fell over 97% during the month, according to industry data released this week to around 4,300 units, the lowest levels since 1946.

New orders for Germany’s manufacturing sector fell 15.6% month on month in March, the sharpest decline since records began in 1991, with eurozone orders falling 17.9%.

Capital goods makers were the worst-hit, with new orders falling 22.6% month on month, indicating the extent to which firms and consumers have cut back on purchasing since the country’s lockdown began.

India, which stands as one of the most locked down countries in the world at present alongside South Africa and Italy, according to Deutsche Bank calculations, saw its service sector PMI fall from 49.3 in March to 5.4 in April.

Service sector demand is less important to chemicals firms than manufacturing, but the extent of the fall hints at the extent of the demand collapse in one of the world’s key chemicals producing and consuming country.

Speaking at Germany-based producer BASF’s first-quarter earnings call last week, CEO Martin Brudermueller noted that, despite the gradual recovery of Asia production, India’s lockdown left a hole in global supply chains due to the country’ prominence as an intermediate producer.

“Because India is in total lockdown, [and its] chemicals industry is deeply ingrained into supply chains globally, a lot of intermediate manufacturing for pharmaceuticals and agrochemicals, [is facing a] standstill in production,” he said.

Bad news continued for US employment, with private sector payroll data from ADP indicating that job losses in April exceeded 20m, obliterating the 835,000 jobs lost in February 2009, following the global financial crisis, as the country continues measures to reopen its economy.

Focus article by Tom Brown