Chemicals are the best leading indicator for the global economy. They are warning of higher prices, and potential shortages ahead:
- Prices were already high at the start of the year
- But they have soared since the Iran invasion as the I.C.I.S. IPEX data shows
- US Gulf prices are up 44%, NW Europe is up 33%, NE Asia is up 26%
- Globally, chemicals prices are already up a staggering 41%
Chemicals are the world’s 3rd largest industry after energy and agriculture.
They are used in every country and go into 96% of all manufactured goods.
And they are early in the value chain. So they provide early warning of what is ’round the corner’.
US DIESEL/DISTILLATE INVENTORY CONFIRMS CHEMICALS WARNING
Governments are focusing on oil prices as their marker for energy. These are relatively high, but not yet >$100/bbl.
But consumers and industry use products. And diesel is a key product for farmers, trucking, shipping, construction and power generation:
- US distllate fuel stocks are at record seasonal lows, as the chart shows
- And demand is poised to rise
- The winter heating season will soon begin in the Northern Hemisphere
- Farmers will also start the planting season in the Southern Hemisphere
Relatively little product is moving through the Strait of Hormuz as refineries have been damaged in the fighting.
And Russia – the second largest diesel exporter after the USA – has stopped exports due to Ukrainian attacks on its main refineries
DIESEL PRICES ARE AT RECORD SEASONAL LEVELS
Already, prices have soared to record levels as the Bloomberg chart shows:
- They are normally ~$20/bbl above crude oil levels to cover refining costs
- Today, US prices are ~$100/bbl higher at $200/bbl – an all-time record
US retail prices are following the same path. They are at record levels at $5.82/gal, and seem set to move higher.
Equally worrying is that US refineries are already running at a post-2000 record level of 98%:
- They have been >95% for 12 weeks – the longest stretch since 1997-8
- Refiners have postponed planned maintenance to try and meet demand
- But they will have to shutdown before the winter starts, to catch up
- And the risk of an unplanned outage is clearly growing
INFLATION RATES ARE ALREADY MOVING HIGHER
Inflation rates are already responding to the higher costs for chemicals and oil products as the chart shows:
- The Iran War began at the end of February
- Japanese inflation had risen 0.4% by July; US inflation was up 1%
- European inflation had risen 1.6% by August
- UK is the exception as its inflation was already high
Wars are always inflationary. And the Iran and Ukraine Wars are following this pattern.
Inevitably, this inflation will continue to work its way down the value chain. As chemicals are warning, higher prices and shortages almost certainly lie ahead.