ACC OR Jan16Capacity Utilisation (CU%) is the best measure we have for the current state of the global chemical industry.  It doubles as an excellent proxy for the outlook for the global economy.  And as the above chart based on latest American Chemistry Council data shows, recovery still seems a long way off:

  • Global CU% was down to 81.4% in November, versus 82% in November 2014 and 82.4% in November 2013
  • The only bright spot was in Central/Eastern Europe, up 9.2% versus 2014: Russia was up 14%
  • Asia is showing some signs of recovery under the influence of cheaper oil, up 4.9% versus its 7.5% peak
  • Middle East is also recovering, up 4.4% versus its 6.1% peak, as countries focus on petchem exports
  • W Europe was up 2.8% versus its 4.1% peak, N America was up only 2.2% versus its 5% peak
  • Latin America remains in crisis, setting a new low at -3.4%, with Brazil at – 4.3%

Sometimes November can disappoint as companies reduce inventory before year-end, but there was little sign of this happening in 2015.  Many companies had in fact been convinced by the analysts that oil prices would rebound, and so there was actually some panic buying.  This has no doubt led to some regrets, with oil now back at 2004 lows and still weakening as US and Iranian exports ramp up.

Pressure is also rising in Asia from the increase in China’s oil product exports.  November data showed:

  • Gasoline exports up 10% so far this year at 5m tonnes; jet kero exports up 17% at 11m tonnes
  • Fuel oil was up 12% at 9.3m tonnes; and diesel up 64% at 6.2m tonnes

Naphtha and LPG saw imports rise; naphtha was up 79% at 5.7m tonnes and LPG up 69% at 10.6m tonnes.  But these increases effectively meant that  China was also boosting its own petchem production – not only reducing its potential need for polymer/PTA imports but also increasing its petchem export potential.

January will be a critical month as Western countries return from the holidays.  This will give us some insight into likely demand trends in Q1, which are normally very strong for seasonal reasons.  But Asia will, of course, be slowing ahead of Lunar New Year on 8 February.