Global economy weakens as China oil demand drops

Oil China Sept11.pngThere seems little doubt that the global economy is now entering a new downturn. Pessimists may worry that it has already begun in Q3. Optimists might hope it will be delayed till Q4, or even Q1.

But almost all major indicators are pointing in the same direction.

• On the macro-level, the latest American Chemistry Council report notes that OECD leading indicators for “Canada, France, Germany, Italy, UK, Brazil, China and India (continue) to point to a slowdown“, whilst those for the USA and Russia “are now also pointing more clearly to a slowdown“.
• In the chemicals sector, ICIS news reports that “the problem for the market now, however, is that the mood is no longer upbeat and optimistic, but prices for many chemicals are still at or hovering below record highs. In such an environment nobody wants a warehouse full of material and no cash in the bank.”

China, of course, is a major concern. It led the global economy out of the 2008/9 downturn, and justified today’s high crude oil prices. Yet as the above chart from Petromatrix shows:

• Oil imports this year (black) are only 270 kbpd higher than 2010 (blue)
• Over the past 3 months, they are actually down 164 kbpd versus 2010

Equally, the Turkish chemical market is showing signs of distress. Turkey is an excellent leading indicator, due to its large domestic demand and low level of production:

• In tight markets, this means prices rise very quickly, as exporters see better returns in their own markets
• In weak markets, prices fall very quickly, as producers fight for volume

A long-time Turkish reader told the blog this week that in polyethylene, European producers are active at “very competitive levels…followed by ME producers who do not have enough volume in Asia“. Similarly, he says “copolymer PP has lost its usual €50/t premium over homo“, whilst “the PVC market is under huge pressure“, with US exporters very active.

Price movements since the IeC Downturn Alert launched in April, and ICIS pricing comments this week are below:

Benzene NWE, down 19%. “Continued to struggle with global economic bearishness.”
HDPE USA export, down 14%. “Prices too high to compete with lower Asian and Middle Eastern prices”.
Naphtha Europe, down 12%. ” Demand is weak from petchems and gasoline”.
S&P 500 Index, down 11%.
Brent crude oil, down 11%.
PTA China, up 1%. “Prices rose after China’s Yisheng Petrochemical shut 3.3 million tonnes due to a mechanical issue. They then dropped because of the bleak global economic outlook.”