Over Christmas, the blog spent some time considering whether its IeC Downturn Alert had served its purpose. By luck, or possibly judgement, it had been launched at the exact market peak on 29 April. And hopefully it had helped to alert companies to the difficult times that lay ahead.
But by December, most analysts and commentators were arguing that the worst was over:
• US markets were expected to strengthen
• China was certain to provide strong demand
• Europe’s debt crisis was finally resolved
• Rising oil prices confirmed that a strong recovery was underway
6 months later, the blog is glad it didn’t listen to these consensus views.
Of course it wants the economy to do well. Of course it wants the industry in which it has worked for 30 years to prosper. But as the chart above shows, its caution has been fully justified:
• US polyethylene export prices ((purple) are down 29% since January. And the American Chemistry Council says its new leading indicator of demand “is signalling a slowing US economy”
• PTA prices (red) in China are down 43% due to lack of demand
• Naphtha prices (brown dash) in Europe are down 31%
• Oil prices (blue) have tumbled 29%, after rising strongly till March
Only benzene prices (green), up 10%; and the US S&P 500 Index (pink dash), up 22%, have risen. Benzene markets have suffered major supply outages; whilst liquidity from the US Federal Reserve has enabled financiual markets to ignore developments in the real economy.
Equally, prices today in all 6 markets are lower than on 29 April 2011. This strongly suggests that the strength seen between December to March was a typical bear market rally, and not the start of a sustained upturn.
Naphtha Europe (brown), down 32%. “Demand from the petrochemical industry remains minimal, with rival feedstock LPG continuing to be priced far below naphtha”
PTA China (red), down 31%. “Major polyester makers offered lower prices to encourage sales and relieve their inventories”
HDPE USA export (purple), down 29%. “Export prices were stable to weaker, as falling feedstock prices pushed some prices lower”
Brent crude oil (blue), down 25%
Benzene NWE (green), down 7%. “June was an extraordinary month in terms of pricing, which skyrocketed because of various planned and unplanned outages”
S&P 500 (pink dash), down 0.1%