Slowing markets underline failure of central bank policies
on December 3, 2012

D'turn 30Nov12.pngAs we approach year-end, it is interesting to review performance of the blog’s 3 benchmark products since the start of the major central bank liquidity programmes. The chart begins in January 2009 when the G20 stimulus programme was being prepared, and then follows the impact of the QE2 programme in H2 2010, Twist in H2 2011 and this year’s QE3 programme:

• US polyethylene prices (purple) peaked at $1642/t on the day the Downturn Monitor was launched (29 April 2011) and have never regained this level
• They have also shown a worrying pattern of falling peaks and troughs since then, which normally indicates a loss of momentum
• This might, of course, be due to falling US shale gas prices, which boosted producer margins, but ICIS pricing reports suggest export demand has also weakened

• China’s PTA prices (red) similarly peaked at $1523/t (69c/lb) on 25 March 2011
• Their peaks and troughs have been much lower each cycle, confirming the major slowdown underway in China’s economy

• Benzene prices (green) are the exception that proves the rule, with the $1470/t seen on 14 September 2012 the highest of the cycle
• Benzene’s by-product status has led to a major reduction in availability due to lower operating rates in refineries, crackers and MSTDP plants, and greater use of ethane feeds in the ME/US
• Yet today’s $1407/t is still only marginally above the $1395/t peak seen on 18 February 2011

3 years ago, policymakers laughed at any suggestion that their stimulus programmes could possibly fail. They kept assuring industry and the general public that these were necessary short-term measures, which would quickly return the global economy to the previous SuperCycle.

Today, they have become locked in a downward spiral. They worry that cutting back on stimulus might well cause asset prices to tumble, and heighten the risk of debt default on a major scale. And so they still find it difficult to accept the simple truth that demographic changes are taking global markets in a new direction.

The chart shows benchmark price movements since the IeC Downturn Monitor’s 29 April 2011 launch, and latest ICIS pricing comments below:
HDPE USA export, purple, down 22%. “Little trade activity because of weak global demand.”
PTA China, red, down 16%. “Downstream textile factories prioritize offloading product stocks while keeping low feedstock inventories to relieve cash pressure”
Naphtha Europe, down 14%. “The outlook is still gloomy, with the oversupply set to build further and little opportunity to offload it”
Brent crude oil, down 12%
Benzene NWE, green, up 7%. “Softer derivative demand from key end-use sectors such as styrene and phenol, also made shipping cargo out of the ARA region a more attractive proposition”
S&P 500 stock market index, up 4%

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