Downturn Alert launches in the blog
on May 2, 2011

D'turn Apr11.pngThey don’t ring bells at market turning points. Otherwise, we could all retire to the Bahamas.
But there is growing anecdotal evidence, from chemical buyers and the main retailers, that we may have reached at least a temporary market peak. And Brent crude oil has been stable for 4 weeks at $125/bbl.
Equally, since 1970, sustained periods of oil prices above $50/bbl in real terms ($2011) have always led to economic downturns. Some may hope that ‘this time it may be different’, but the blog prefers Einstein’s famous phrase that “the definition of insanity is doing the same thing over and over again and expecting different results“.
Therefore the blog is launching its Downturn Alert. This shows the percentage change in prices recorded by ICIS pricing since the start of the year in 4 main markets: Brent crude oil; benzene in North West Europe (NWE); high density polyethylene blow moulding grade exports in the US Gulf (HDPE USG); terephthalic acid imports to China (PTA).
As one would expect, the first report shows a mixed picture:
• Brent prices (red dotted line) are up 32% from $95/bbl
• HDPE USG (purple) is up 31% at 74.5c/bl ($1642/t)
• Benzene NWE (orange) has rallied, but is only up 13% at $1310/t
• PTA China (blue) has fallen since March, and is up just 4% at $1330/t
HDPE seems the most optimistic market, as its jump last week means it has matched the rise in Brent. But ICIS pricing report that “spot exports are becoming decreasingly viable” versus supplies from the Middle East, China and South East Asia. The price move therefore seems more supply-related than consumer-driven.
Equally, the failure of both benzene and PTA to pass through the latest rise may turn out to be particularly significant:
• Benzene prices have jumped 375% since January 2009, versus Brent’s 175% rise. But benzene is now down $85/t versus its February peak.
• PTA China prices have been falling steadily since March, and are now $200/t lower at $1330/t.
Markets, of course, have a habit of surprising. But as we saw most recently in 2008/9, the combination of destocking with a downturn in final demand, can have a devastating impact on the chemicals industry. Thus the blog will keep a close eye on developments in coming weeks.

Share This Post
Comments
  • Chemicals & The Economy
    June 27, 2011

    Downturn Alert shows markets still weakening

    The IeC Downturn Alert launched on 2 May. Later that day, the US S&P 500 – the world’s most important stock index – hit a post-Crisis high of 1370. Last Friday, it closed down 7% at 1268 (purple dotted line…

  • Chemicals & The Economy
    August 29, 2011

    Recession may now be very close

    German Chancellor Merkel’s recent comment that “I don’t see anything which signals a recession in Germany” is just one sign of the current complacency about the global economy within the Western political elite. Long-standing readers will remember Prof…

Leave A Reply