D'turn 2Sept11.pngChemical markets are traditionally 6 months ahead of the wider economy, as they are so focused on consumer demand. September may therefore provide a ‘moment of truth’ for the IeC Downturn Alert, launched in April:

• The petchems downturn since April may now become apparent in the wider economy
• Alternatively, demand may recover strongly, signalling recovery remains on course

It would be unwise to jump to conclusions this early in the month. But the failure of the US economy to add a single job in August, for the first time since 1945, is not a good omen.

Equally, only one downstream market, PTA in China, is currently showing any pricing strength. And even this seems somewhat precarious, according to the latest ICIS pricing report below. Other ‘bellweather’ markets such as benzene and polyethylene seem potentially weak.

Bulls, however, will take heart from the fact that Brent crude oil prices and naphtha both managed a small increase, even though inventories remained high. Any resumption of demand could enable derivative prices to recover quite sharply from the falls shown in the above chart.

Price movements since April, and ICIS pricing comments this week are below:

S&P 500 Index (pink dot), down 14%.
HDPE USA export (purple), down 14%. “Lower Asian export prices are continuing to reduce interest in US material”.
Benzene NWE (green), down 13%. ” Wider economic jitters could potentially affect demand and pricing.”
Naphtha Europe (brown dash), down 12%. ” Market is again bearish, and has lengthened from the previous week due to poor demand”.
Brent crude oil, down 9%.
PTA China (red), down 3%. “Some players expect a downward correction, while others see prices continuing to rise amid firm PX costs”.

UPDATE. Worryingly, Swisss firm Clariant became the first chemical company to issue a profit warning today, due to “order sizes coming down and more insecurity in the supply chain” in Brazil, US and Europe.

Bloomberg quotes the blog adding “There appears to be no ‘seasonal surge’ in demand from Western retailers in advance of Thanksgiving and Christmas. This is further confirmation perhaps that consumer demand is taking a real hit.”