LONDON (ICIS)--European chemicals stocks rallied on Tuesday amid jumps of nearly 4% for Germany’s DAX index and strong bumps for other bourses in the region as gathering economic momentum overpowered geopolitical unease and a week of protests in the US.
While economic activity across much of the world’s key economies with the exception of China remains in contraction, the easing of conditions compared to the lows seen in April and May are fuelling more bullish investor sentiment than has been seen in several months.
Germany’s DAX index closed up up 3.75% and France’s CAC 40 rallied over 2%, while gains for the UK’s FTSE 100 were trimmed by the impact of Brexit negotiation tensions weighing on the pound, standing at 0.87%.
The Stoxx 600 chemicals index closed up 2.41%, with top performers Bayer, Covestro and BASF finishing the day up 5.3%, 5.44% and 6.73% respectively. BASF and Covestro both have substantial exposure to the beleaguered automotive sector, meaning that more normalised economic conditions could help to buoy both in June from demand lows seen last month.
Covestro confirmed to ICIS last week that automotive sector volumes fell 60% in the EU and North America through April and May, with polyurethanes volumes down 40% and declines for polycarbonates limited to 20% by channelling material to less affected markets.
MARKET EYES NEW CRUDE
Crude prices continued to firm after slumping on geopolitical tensions at the end of last week on expectations that OPEC+ may extend its most substantial crude production cuts through July.
The cartel and its allies had agreed to cut production by 9.7m bbl/day through May and June, which has been more effective than the original market response implied at driving prices upward, but compliance through the first month stood at 77%, according to a Bloomberg survey cited by banking group ING.
“Iraq and Nigeria fell short of their quotas, with compliance in the first month of around 42% and 33% respectively. Even the largest OPEC producer, Saudi Arabia was unable to reach its target production of 8.5m bbl/day, with output in the Kingdom coming in at 8.7m bbl/day,” said ING report authors Warren Patterson and Wenyu Yao.
The analysts noted that compliance is likely to improve in June after Saudi Arabia, the United Arab Emirates and Kuwait agreed to cut output by an additional 1.18m bbl/day.
MANUFACTURING WEAK BUT
Manufacturing sector sentiment in the eurozone continues to improve, although output both in the bloc and globally continues to be mired in contraction, with IHS Markit global purchasing managers’ index (PMI) levels in May at 42.4 compared to 39.6 in April.
This remains one of the steepest declines in the 22 years of the global manufacturing PMI survey but represents a continuing slow march toward more normal levels from the lows seen in April. The sector remains on track for the steepest decline since early 2009 in the second quarter, but the easing of lockdowns and reopening of factories has eased the extent of the decline, according to Markit chief economist Chris Williamson.
China was the only key economy to see manufacturing industry growth during the month, giving some hope that levels could turn positive elsewhere in a month or two as other countries follow its path out of lockdown.
Conditions remain challenging across for producers across many petrochemicals value chains, with increases in monthly contract prices for June only clawing back a portion of the ground lost at the peak of the crisis.
Many more commoditised products had seen substantial oversupply on the back of substantial capacity ramp-ups weigh on pricing long before the onset of the pandemic and pricing power remains limited in many markets.
The Europe monoethylene glycol (MEG) contract was agreed with its first increase this year on Tuesday, but the €7/tonne increase significantly undershot the €60/tonne increase in upstream ethylene pricing.