And sorry I could not travel both“
The opening of Robert Frost’s famous poem ‘The road not taken’ aptly sums up today’s market situation:
• Financial markets continue to be supported by the Fed’s Operation Twist
• Petchem markets are slowing in reaction to weaker consumer spending
Both of them cannot be right. Either the Fed’s magic will work, and inspire the long-awaited rebound in the economy. Or, the record high oil prices caused by its QE1 and QE2 (Quantitative Easing) policies will end up causing a new recession.
Last week, the US S&P 500 stock market index moved past the 1370 level. This peak was set on the day the blog published its first Downturn Alert last year. But oil prices didn’t follow, ending at $125/bbl again.
Equally, and ominously for those who share the blog’s belief in benzene’s predictive power, its fall continued into a second week. Whilst China’s PTA market also slowed further.
The issue was well summarised by ICIS’ Mark Victory, who noted:
“Although prices are on an upward trend, feedstock cost rises since the beginning of 2012 have not been passed into the majority of downstream markets, and margins are squeezed. Consumption for many products remains below 2012 levels and the majority of price rises are not being driven by demand, but by cost.”
On the positive side, North America has had the warmest winter for 50 years. This means its construction activity has been stronger than normal. Equally, its auto markets have been supported by the removal of supply constraints caused by Japan’s tsunami tragedy in March last year.
But Frost’s poem reminds us that one market will prove the other wrong.
ICIS pricing comments and price changes since the IeC Downturn Monitor launch on 29 April are below:
PTA China (red), down 12%. “End-users preferred to minimise their purchases amid the downturn to prevent additional losses.”
Benzene NWE (green), down 10%. “Spot prices slowly moved down this week, on the back of softer crude and lengthening supplies. Demand for benzene derivatives, although steady, was far from booming or close to the levels seen during the same period last year”
HDPE USA export (purple), down 5%. “High prices for bagged US Gulf export PE were hindering trade”
Naphtha Europe (brown dash), down 3%. “The majority of participants have not noticed any improvement in demand for naphtha.”
Brent crude oil (blue dash), no change
S&P 500 Index (pink dot), up 3%