Buyers disappear as oil prices fall
on May 14, 2012

D'turn 11May12.pngPetchem markets continue to fulfill their role as leading indicators for the global economy. The chart shows the benchmark products in the IeC Downturn Monitor since January 2011:

• PTA prices in Asia (red line) have remained weak throughout, clearly signaling the major slowdown that is now underway
• US polyethylene export (purple) prices managed a recovery early this year, due to tight ethylene markets, but have since reduced
• Benzene (green) managed even less of a recovery in early 2012, despite lower cracker operating rates reducing supply
• Naphtha (brown dash) was supported by higher oil prices, but has recently fallen quite sharply

The problem is the convergence of two factors:

• High oil prices have destroyed demand, just as at previous times when they rose to take 5% or more of global GDP. Consumers simply don’t have any spare cash, and borrowing is more difficult since the financial crisis began
• Buyers were forced to buy forward earlier this year as oil prices rose, in order to protect margins. Now they are scared to buy as oil prices weaken, and they worry about having high inventory levels ahead of the slower summer period

Price movements since the April 2011 launch of the IeC Downturn Monitor, with latest ICIS pricing comments below:
Naphtha Europe (brown), down 17%. “Less than expected improvement in demand for naphtha”
HDPE USA export (purple), down 16%. “Interest remains weak as buyers are expecting more price drops in the next few weeks “
PTA China (red), down 14%. “Polyester demand in China remained weak despite the traditional peak season in April-May.”
Benzene NWE (green), down 6%. “Cracker operators veer toward lighter feedstock, resulting in less pygas and benzene production”
Brent crude oil (blue dash), down 10%
S&P 500 Index (pink), down 1%

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