‘Demand and prices in free fall’

The moment the blog has long feared, and warned about, may be about to arrive. It appears that we may be about to revisit 1980, when for some weeks it seemed that demand for many petchem products had simply stopped. As Nigel Davis notes in an excellent ICIS insight article, we are not there yet. But the warning signs are building.
As he observes, ‘the slowdown in demand growth has until now been masked by supply chain inventories, but those clouds are drawing back to reveal the true situation. Producer stocks are building as the situation deteriorates. Polymer prices have fallen sharply over the past two weeks.’
The causes are the same as in 1980:
• End user demand for polymers is focused on housing/construction and autos. As the blog has chronicled over the past year, this demand has collapsed by 20 – 60%, depending on country.
• The petchem industry, however, has been living in a ‘parallel universe’. All down the value chain, buyers were instead focused on buying ahead of likely oil price rises.
As I noted in my radio interview last week, the 1980 experience tells us what to expect. First, buyers have to reduce their stocks to more ‘normal’ levels. This probably took place in Q3. Now, they have to adjust stocks to today’s actual level of demand, which is a lot lower than ‘normal’. This process will probably take most of Q4.
I remember 1980 as the scariest moment of my 30 year chemical career. We simply had no idea what was happening to us. If your Board would like to talk about the current situation, and to discuss how to manage it, please contact me. I will be happy to use my experience to try and help.

2 thoughts on “‘Demand and prices in free fall’”

  1. Agreed that the current prognosis is pretty poor. However, if there is one small silver lining for the European commodity petchem sector, it must be that margins on any tonnes that can be sold, have rebounded very firmly through Q3 and at the start of Q4 due to the falling feedstock costs. This provides some headroom to adjust product pricing strategies without instantly risking business failure. I’d suspect that folks working in the banking sector would love to have this headroom?

  2. INEOS announce €1bn inventory loss in Q4

    In early October, I forecast that we were about to revisit “the scariest moment of my 30 year chemical career”, adding that: “The moment the blog has long feared, and warned about, may be about to arrive. It appears that…

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