Chem sector confidence rebounds but with long-term pessimism - Aug CMCI

22 August 2016 15:21 Source:ICIS News

LONDON (ICIS)--The Chemical Market Confidence Index (CMCI) for August shows improving short-term business conditions but lower long-term confidence as economic and political uncertainty continue to weigh down the European market, according to ICIS data on Monday.

July sentiment was dominated by the UK's vote to leave the EU, which sharply reduced business confidence compared with the previous month and which also lowered profitability expectations and order book volumes.

The August index reflects a slight rebound in short-term confidence, with business conditions improving and profitability and order book volumes rising, but a continuing drop in long-term expectations for Europe as anticipated expectations for all three factors over the next 12 months continued to fall.

The short-term increase may reflect an uptick in confidence following the initial shock of the vote, with new figures from the UK government showing retail sales rising by 1.4% and a continuing increase in employment in the UK in July, and inflation only rising moderately to 0.6%.

In general, the movement in short-term confidence has returned the market to a similar short-term mindset seen in May after a dip in June and July, with profitability climbing to the highest levels recorded in 2016 although still remaining in negative territory.

However, the long-term outlook remains clouded by factors like a volatile crude oil price and uncertainty surrounding the UK's position in the single market once negotiations to exit the EU begin, which may be linked to the continuing fall in long-term sentiment.

In addition, uncertainty surrounding the economic outlooks for some European countries such as Greece, as well as the unpredictable outcome of the upcoming US election, are weighing on market sentiment.  

Current profitability levels rose significantly, although they remained in negative territory overall at -5.2. However, expectations for future profitability were significantly lower across the buyers, producer and trading/distribution sectors, although the latter two were much more strongly affected than the former.

Order book volumes were more balanced with slightly higher orders in the short term and slightly reduced expectations for the next 12 months.

The downward swing in expectations was mostly driven by traders and producers, with buyers having a more optimistic outlook. In the short term, producers also had the most negative view with buyers and traders/distributors seeing a more positive trend.

Profitability rose significantly for producers and traders/distributors and was stable for buyers; however, producers and traders were also significantly more pessimistic regarding long-term trends whilst buyers were slightly positive in their predictions for the next 12 months.

 

The newly established ICIS Europe CMCI aggregates sentiment from hundreds of petrochemical market players actively involved in price negotiations across more than 60 different markets.

The Europe CMCI runs from +100, to -100, with zero on each index representing neutral, or uncertain conditions, a negative score indicating bearish expectations and a positive score representing bullish expectations. The indices also gather sentiment on the comparison between the current situation and the situation across the past 12 months to give a complete picture of current market conditions and confidence. The information is gathered in the third week of each month.  A full methodology is available on request.

For more details on the overall Europe CMCI data, click here

By Chris Barker