The above chart is a real ‘labour of love’ by the American Chemistry Council. It represents their best statistical effort to model:
• Change in inventories for the major thermoplastics
• Change in underlying demand for them, down the value chain
This is critically important for the chemical industry, as it shows what is really happening in the US economy in terms of demand for the major volume products – polyethylene, polypropylene, polystyrene and PVC.
The conclusions are sobering. Inventories fell 31% from 2008 to trough. Actual demand fell 17% from the same 2008 peak, and is not showing any signs of being about to recover in a major way.
The red line shows very clearly the 18% leap in inventories from 4.9 billion pounds (2.2 million tonnes) in late 2007, to a peak of 5.8bn lbs (2.6m tes) in mid-2008. As the blog warned at the time (in October 2007), this was the moment when the value chain moved into a ‘parallel universe’ – buying ahead of oil price related increases, whilst underlying demand in housing/autos etc began to crumble.
Inventories then collapsed by c31% to 4bn lbs (1.8m tes) during Q4, causing a massive shutdown of capacity, as producers struggled to adapt. Since then, the data shows that the 20% recovery in inventory in the New Year has not been sustained. Customers, struggling to preserve cash, and seeing weak demand, then reduced inventories again.
Encouragingly, though, the ACC estimate that “implied underlying demand and actual domestic sales started to return to balance” in Q1. Consumption averaged 4.89bn lbs (2.2m tes) versus actual sales of 4.56bn lbs (2m tes). Inventories have therefore been reducing at a slower rate of 0.33bn lbs (150 KT) per month.
The ACC’s blue line shows what has been happening to actual demand. This has fallen 17% from a 2008 peak of 5.8bn lbs (2.6m tes) to 4.8bn lbs (2.2m tes) in 2009. And whilst the line may well fluctuate on a month by month basis, it seems unlikely to return to 2005-7 peak levels for a long time to come.