Helping you navigate the new normal
There were only two winners from the past 3 months of OPEC’s “Will they?, Won’t they?” debate on output cutbacks. Iran wasn’t one of them – although the talks did emphasise its renewed ability to control the OPEC agenda. Nor was Saudi Arabia, forced to accept the lion’s share of the proposed cutbacks. Instead, the […]
China’s New Normal policies are taking global commodity markets in a new direction, as I describe in my latest post for the Financial Times, published on the BeyondBrics blog Commodity prices could well have further to fall, now China’s business model has changed. It is no longer aiming to achieve high levels of economic growth by operating […]
Oil prices have fallen around $5/bbl, since my suggestion last week that a “New oil price fall was a matter of “when”, not “if”“. It thus seems increasingly likely they are resuming their fall back towards $30/bbl, as we discussed in last week’s pH Report webinar. Financial players clearly misread the market when they assumed […]
There are some signs of a recovery in some markets, but the overall picture is still very quiet for what should be the seasonally strongest quarter of the year for the West. Markets should also have been strong in Asia, in the run-up to this week’s Lunar New Year (LNY), but they have remained relatively […]
An astonishing coup appears to have begun 10 days ago, in the last 45 minutes of trading in US oil markets. Yet we still don’t know who master-minded it, or their full objectives. . What happened to oil prices? Prices jumped 8% in the last 45 minutes of trading on Friday 30 January, taking Brent to $53/bbl and […]
Many readers have been taking a well-earned break over the past few weeks. As usual, therefore, the blog is highlighting key posts during August, to help you catch up as you return to the office. Economic outlook: Great Unwinding of stimulus underway. Q2 results show slowing growth. US retail sales decline in line with incomes, […]
The Great Unwinding of the central banks stimulus policies is underway, as discussed last week. Oil markets have been one of the first to feel the change, as the chart shows, with prices finally falling out of the ‘triangle’ shape built up since 2008. The value of the US$, interest rates and the S&P 500 […]
Imagine that 5 years ago, you had been asked by your Board to forecast future oil prices. And suppose you had prepared a forecast which said: Oil demand growth will slow in the West, as cars become more fuel-efficient and ageing populations drive less Demand growth in the emerging economies will be supported temporarily by real estate […]
Oil futures markets are a wonderful thing, in theory. They are supposed to enable price discovery, whilst their liquidity is meant to enable companies to reduce inventory levels. Instead of tying up working capital, they can simply go to the market and buy what they need, when they need it. But the chart above, of US oil […]
It seems that cotton prices are about to return to normal levels again. The blog’s detailed discussion of the issues last September highlighted how current Chinese government policies seemed doomed to fail, at enormous cost to the wider world. It now looks as though China’s new leadership agrees with this conclusion. Since late 2008, the previous leadership’s […]
Whisper it quietly to your friends in the oil business. But oil prices are looking very vulnerable. Producers and the central banks have done a great job in creating the myth of imminent shortages – these have always been ‘just about to happen’ as a result of supply disruptions or the long-promised recovery in global […]
The blog was very pleased to see the Nobel Prize awarded jointly to Robert Shiller, whose words of wisdom on housing and stock markets it has cited many times. Shiller’s key insight, in his book Irrational Expectations and since, has been to confirm Ben Graham’s famous saying: “In the short term, the market is a […]
Strong aluminium markets have provided great support to caustic soda producers in recent years. PVC and construction markets have been weak, but volumes into aluminium mining have kept prices and overall chloralkali margins strong. Now this may be about to change. As the blog noted in March, aluminium prices have been supported by the behaviour of […]
Since 1900, as the chart shows, oil prices have never been so high for so long as now. Until 2003, they had only been above $30/bbl for 4 years between 1979-1982, during the OPEC production cuts in the Iran crisis. But since 2004, they have been cont…
Do any blog readers routinely trade on the basis of Twitter comments? Or more specifically, do any trade within milliseconds of receiving a tweet? The answer of course is “no”, as readers have no ability to trade in milliseconds.
But last week the c…
The blog was with the mining industry last week, when giving the keynote speech on The Impact of the ‘Demographic Cliff’ on Demand Patterns at the annual Metal-Pages conference. Mining is seeing similar demand patterns to those in chemicals, whilst th…
If something seems to be ‘too good to be true’, then it usually is. This may be the learning for the world’s largest pension funds, as they plan their next moves in commodity investment.
Their involvement jumped from 2009 after central banks began st…
Cotton prices, as the chart shows, have returned to the 50c-70c/lb range that has dominated since 1982. This proves, once again, that ‘reversion to the mean’ is usually the best investment strategy. Sadly, however, it is the people who did not belie…
Once upon a time, financial markets reflected supply and demand balances. Some players, the speculators, would use them to try and anticipate changes in these balances. Some players, the producers and consumers, used them to help stabilise their marg…
6 months ago, when reporting Q1 results, the blog strongly disagreed with the rosy outlook being offered by most analysts. It warned then that:
“The history of the past 40 years shows high oil prices have always led to:
• An initial boom in volume…
Europe’s polyethylene (PE) trade presents a fascinating patchwork, based on its geographic and historical trading position, overlaid with its multi-ownership structure.
This is highlighted in the above chart (based based on trade data for the January-…
Long-standing readers will remember that then-UK Finance Minister Alastair Darling was the first Western politician to recognise in August 2008 the disaster that was about to hit financial markets.
Now out of office, his warning today therefore deserv…
It is 5 months since the blog launched its IeC Downturn Alert, using prices from 29 April. It wrote then that:
“They don’t ring bells at market turning points. Otherwise, we could all retire to the Bahamas.”
But its argument was that a peak was li…
Our 10th European Aromatics and derivatives conference will take place on 22-23 November.
Co-organised with ICIS, it provides an excellent opportunity for delegates to meet up and exchange views in the critical end-of-year period.
It features the …
Last week’s New Normal seminar in Houston continued the success of the Singapore and Frankfurt events. It sparked lively debate about the major opportunities for future growth in the New Normal. These include:
• The over-55 age group in the West …
The brave new world of modern finance continues to amaze the blog.
It still has problems with the idea that the answer to having too much debt is to borrow some more. But last week’s Eurozone summit not only did this (as noted by the German central b…
Blog readers can choose their favourite leading indicator this week.
In financial markets, the US S&P 500 index continued its recent rally. If you believe the bullish analysts; a Greek default, lengthy arguments between Germany and France, and the ne…
Wall Street analysts have their bonuses to consider at this time of year. So it is no surprise that they are talking up the prospects for the Christmas season – the peak shopping period of the year in the West.
But those involved in shipping goods do…
The blog will publish its fifth annual Budget Outlook next weekend. As usual, it is therefore time to review last year’s Outlook. Past performance may not be a perfect guide to future outcomes. But it is one of the best that we have.
The blog’s 2008 O…
The great film comedy Groundhog Day saw Bill Murray doomed to repeat the same day in his life, until he learnt to become a better person. Sadly, financial markets have yet to learn from his example.
Every quarter, the investment banks produce new sto…
Yesterday’s Scenarios hopefully provided valuable insight into the challenges ahead for companies and individuals. They also suggest some Critical Success Factors for achieving a successful transition to the New Normal, as set out in the chart above:
…
The transition to the new Normal is likely to be painful and long-lasting.
Future demand growth will be slower as the ageing Boomers spend less and save more.
More regular and deeper recessions are likely to become a feature of the global economy o…
Today’s economic situation is getting worse, not better. The blog believes this is because most policymakers still refuse to accept the wisdom contained in the Beatles’ ‘When I’m Sixty-Four’ song on their iconic Sgt Pepper album.
The Western BabyBoo…
Petchem markets are continuing to act as leading indicators for the global economy. The IeC Downturn Alert shows there was no September rebound in orders after the holiday period.
October will have to bring a sudden, and powerful reversal of the do…
The chemical industry has a turnover of $3.4trn, and is the world’s 3rd largest industry. It matters to the global economy.
Many of its leaders are about to meet next weekend in Berlin for the annual European Petrochemical Association (EPCA) meeting….
Oil supply is critical to today’s global economy.
Now a new book by oil expert Daniel Yergin, author of ‘The Prize’, suggests that the outlook may be more promising than most believe.
Pessimists such as Marion King Hubbert have argued that the world…
An abrupt change of direction is never a pleasant experience in global financial markets. Yet unfortunately, the blog’s regular 6 monthly review suggests this has started to occur since March.
Investors are beginning to fear we may not be be entering…
Financial bubbles are like balloons. Only instead of air, they need to be constantly pumped up with new lending. Otherwise they begin to deflate, and the Minsky Moment occurs.
The above chart of China’s bank lending shows, as discussed last month, t…
Europe is at the eye of the storm when it comes to energy pricing. This is the last thing required by its struggling economy.
As the chart shows, Brent in euros (green line, RHS) is now back at the same level as June 2008, whereas WTI is 35% cheaper …
The IeC Downturn Alert has hopefully done the job for which it was intended. It was launched at the end of April, when the blog became convinced that the global economy was highly likely to enter a new downturn. It …
Companies are now starting the Budget process for 2012-14.
As always, the blog will present its own view next month. It will also review last year’s Budget Outlook, presciently titled ‘Budgeting for Uncertainty’.
In the meantime, companies might l…
Chemical markets are traditionally 6 months ahead of the wider economy, as they are so focused on consumer demand. September may therefore provide a ‘moment of truth’ for the IeC Downturn Alert, launched in April:
• The petchems downturn since Ap…
Many readers have been taking a well-earned break over the past few weeks. The blog also continues to gain large numbers of new readers, as the financial crisis intensifies. As usual, therefore, it is highlighting key posts during August, to help you…
Readers will no doubt be pleased to see that Bloomberg have today published a major article on the likely changes in demand patterns due to the ageing of the Western babyboomers.
Its title, ‘Aging Baby Boomers Shrinking Labor Force May Curb U.S. Growt…
The above chart, from the invaluable American Chemistry Council (ACC) weekly report, highlights the scale of Q1’s inventory build in N American polymer markets (polyethylene, polypropylene, PVC).
This build took place as consumers down the value chain…
All of us would love to be able to see into the future.
Chapter 4 of our new free eBook, ‘Boom, Gloom and the New Normal’, does just this.
It offers 10 predictions about how the world will look in 2021:
1. Young and old will be focused on ‘needs’…
German Chancellor Merkel’s recent comment that “I don’t see anything which signals a recession in Germany” is just one sign of the current complacency about the global economy within the Western political elite.
Long-standing readers will remember Pro…
The investment banks have maintained a consistent focus on oil market supply disruptions and demand surges in recent years, alongside forecasts of sharply increasing prices. We discussed their role in more detail in the recently published Chapter 3 of…
The blog was in a minority of one when it launched its IeC Downturn Alert at the end of April.
But today, only a very few diehard optimists are still arguing the issue. GDP reports in Europe and the USA have shown virtually no growth in Q2, whilst Ch…
ICIS pricing is a very valuable resource, particularly at market turning points. It highlighted the start of the current downturn in April, when reporting that buyers had moved to operating on a ‘hand to mouth’ basis.
Now, its market editors are high…
A year ago, the blog feared we were “still towards the beginning of the crisis”, not at its end. Sadly, its judgement seems to have been correct.
2 weeks after that post, the US Federal Reserve launched its now infamous $600bn QE2 programme. The aim…
Today’s 419 point fall on the Dow Jones Average, and $6/bbl fall in WTI crude oil prices, may not be just another example of the wild volatility that has come to seem normal in financial markets.
It may also mark the end of an era.
Since 1994, the …
The blog was almost alone at the end of April, when it launched the IeC Downturn Alert. Today, its fear that we are close to a global downturn has become mainstream.
As the American Chemistry Council report, “fears of another global recession are …
Chrysler CEO, Sergio Marchionne, has issued a wake-up call to Western auto companies about the growth of China’s exports. He warns that they “can’t count on dramatic growth in Asia to drive prosperity”, and suggests that China’s plans to increase auto…
The blog’s IeC Downturn Alert is now 3 months old. The aim was to provide enough time for readers to develop robust contingency plans, as a new global downturn became more and more likely.
A key issue is that dysfunctional political systems in the eu…
The blog’s quarterly review of company results shows a considerable shift in mood since May.
Then, many analysts were completely fooled by the short-term support provided to margins by higher oil prices. And only Peter Huntsman warned about the risks…
We have another strong speaker line-up for our 10th European Aromatics & Derivatives conference on 22-23 November in Amsterdam, co-organised as usual with ICIS. Patrick Thomas, CEO of Bayer Material Science, will talk about the outlook from the viewpoint of …
China’s surging demand led the chemical world out of recession and into boom territory. Its 53% increase in polyethylene (PE) demand between 2008 – 2010 (up 6.2 MT), was typical of the support it provided. But H1 2011 has not …
Crude oil and commodities markets have lost touch with the fundamental realities. This didn’t just happen yesterday, but began a decade ago. That’s the argument put forward by my co-author, John Richardson, in the latest chapter of our new free …
Oil prices distorted by Wall St’s computer trading Read More
Last month, the blog suggested that CEOs might want to warn investors of the threat to earnings from high oil prices, unemployment and economic fragility. BASF, the world’s largest chemical company, have done exactly this today. New Chairman, Dr Kurt …
As promised yesterday, the blog looks today at the impact of high frequency trading (HFT) on oil markets. This now takes place in micro-seconds. It is algorithm-driven via ‘black boxes’, and so fast that as Andy Haldane of the Bank …
The world’s major central banks, particularly the USA and China, have been the main driver of financial markets since the start of the Great Recession, due to the liquidity they have provided: • China’s credit bubble has funded astonishing growth …
Credit expansion drives financial market speculation Read More
Petchem markets have moved into an interesting phase. Optimists will point to the recovery in crude oil and financial markets, plus higher prices for naphtha and benzene. They will see these as signs that we are just in the middle …
Greece is about to become the first developed country to default on its debts since 1964. On Thursday night, Eurozone leaders finally agreed to reduce Greece’s €350bn debts, if only by 21%. They also agreed to take the first steps …
The start of a new half-year usually provides an excuse for the investment banks to publish bullish notes on oil markets. We discuss their role in Chapter 3 of Boom, Gloom and the New Normal, to be published later this …
The last week of a half-year period often sees greater volatility in financial markets, as players rush to position themselves for client reporting. This was most obvious in stock markets, with the US S&P 500 Index (pink dotted line) staging …
European ethylene contract prices (CP) can be excellent indicators of profitability trends in the industry. Buyers were caught short during December, as inventories had been run down for year-end reasons. So when crude prices started rising, they had to rush …
Speculators, assisted by the US Federal Reserve, have driven crude oil prices to unsustainable levels over the past year. Now, the Fed is withdrawing the liquidity that has financed this rise. The above chart from Petromatrix shows the surge in …
The IeC Downturn Alert launched on 2 May. Later that day, the US S&P 500 – the world’s most important stock index – hit a post-Crisis high of 1370. Last Friday, it closed down 7% at 1268 (purple dotted line …
The blog continues to worry about signs of a slowdown in China. Major commodity trader, Glencore, said this week “we see a pullback in China and it will continue“. This challenges the views of Dow CEO Andrew Liveris last month, …
There is worrying evidence that the US may be close to recession. This may seem unlikely to those who have only known the world of the past 25 years. Between 1982-2007, US recessions were very rare. They took place just …
When the blog launched its IeC Downturn Alert in early May, it noted that “they don’t ring bells at market turning points”. However, it hoped that the Alert would provide a replacement. It seems to be doing its job. As …
Between 1854 and 1982, the US economy was in recession for 35% of the time, according to Deutsche Bank research. But between November 1982 and December 2007, as the chart shows, it was only in recession for 5% of the …
The chairman of the US Federal Reserve, Ben Bernanke, has issued a sober update on the current state of the US economy. Expressing his disappointment that growth this year “has been somewhat slower than expected“, he then listed a number …
The major US investment banks saw their revenues from commodity trading jump 55% in Q1, as oil and other prices rose. According to the Wall Street Journal, JP Morgan (which employs 1800 people in its commodities unit), made $750m in …
China’s stimulus programmes have been a major support for the global chemical industry over the past 2 years. In polyethylene (PE), for example, its total demand grew an astonishing 53% between 2008-10, from 11.7MT to 17.9MT. But now, China’s rapid …
It is now 5 weeks since the IeC Downturn Alert was launched. The chart above therefore updates the blog’s regular review of financial markets, showing how these have moved over the same period. Most are down around 4%-5%. Russia is …
The blog is excited about its first New Normal seminar in Frankfurt, Germany next month. It follows February’s successful launch in Singapore, and is being held in association with ICIS, on 16-17 June. The Workshop aims to provide a comprehensive …
Volume is a key driver for chemical company profits. High volume means operating rates increase, reducing unit costs. Companies also gain more pricing power. But when volume is low, the reverse happens. Thus the above chart from leading analyst Paul …
Week 5 of the IeC Downturn Alert saw more stability in the markets. This was largely due to the efforts of the major investment banks. JP Morgan, Goldman Sachs and Morgan Stanley all issued ‘buy’ notes on crude oil, suggesting …
Crude stabilises as Goldman suggests $130/bbl target Read More
Q1 saw near record margins for European petchem producers. And there was also a scramble for product, as buyers rushed to secure product ahead of feedstock price-related increases. But this remained a supply-led market. As the chart above shows, based …
Today, the blog is proud to publish the first Chapter of its new eBook: ‘Boom, Gloom and the New Normal: how Western BabyBoomers are changing global chemical demand patterns, again’ It is co-authored with ICIS’ John Richardson of Asian Chemical …
It is now 4 weeks since the blog launched its IeC Downturn Alert. Since then, as the chart shows (based on ICIS pricing reports): • Brent (blue dotted line) is down 11% • Naphtha (red) is down 13% in Europe …
US housing used to be one of the largest chemical markets in the world. In 2006 it was worth $35bn, with 2.2 million new homes each using $16k of chemicals, according to American Chemistry Council (ACC) estimates. Yet as the …
A thousand years ago, the Viking King Canute had himself carried into the sea by his courtiers. He was the most powerful king of his time. But by showing that he could not turn back the incoming waves, he hoped …
Q1 results were very good. But do they mean we are in a SuperCycle, as some analysts have suggested? In a major 3 page article for this week’s ICIS Chemical Business, the blog looks in detail at the risk from …
Two years ago, the blog began to survey global stock markets on what turned out to be the day they began their major rally. Its end-April launch of Downturn Alert may prove similarly fortuitous. Since then (shaded area), Brent crude …
The blog is delighted to announce the title of its new eBook, jointly authored with fellow blogger, John Richardson. It explains how Western BabyBoomers are changing chemical demand patterns, again. We believe it will become vital reading for all those …
A month ago, the blog suggested that chemical companies would “report excellent results for Q1“. Its regular quarterly round-up, below, shows this expectation has been confirmed. The blog was also pleased to see Huntsman CEO, Peter Huntsman, warn about the …
The blog was very interested to see a recent ICIS interview with Torsten Penkuhn, BASF’s petchem head in Asia, by Will Beacham. Penkuhn noted: “We are more and more concerned at BASF about an increasing risk of overbuilding once again. …
There seems little doubt that China is increasingly worried by rising inflation. The latest sign is Unilever, the giant consumer products company, being fined $300k (RMB 2 million), for discussing plans to increase prices due to higher raw material costs. …
The blog launched its Downturn Alert last week, since when we have seen dramatic moves in oil markets. These may well lead to a slowdown in chemical orders, as buyers now have no need to secure supplies ahead of price …
Financial markets have been fired up over the past 2 years via the arrival of high volume computerised trading. This now dominates market action. And until recently, the US Federal Reserve was happy to finance this activity, via its $600bn …
They don’t ring bells at market turning points. Otherwise, we could all retire to the Bahamas. But there is growing anecdotal evidence, from chemical buyers and the main retailers, that we may have reached at least a temporary market peak. …
ICIS pricing reports are a treasure trove of information for buyers and sellers. They can also provide an interesting insight into the overall mood of the chemical industry. This might be one of those times. My blogging colleague, John Richardson, …
The chart above is a flashing amber light for European cracker operators. Based on ICIS Pricing data, it shows the delta between (a) European and US ethylene contract prices (blue line), and (b) Europe and the North East Asian spot …
Ethylene derivative imports threaten European markets Read More
China’s inflation hit 5.4% last month. As the chart above shows, it has more than doubled over the past year. And food prices jumped 11.7%. Clearly, inflation is now out of control, with the Ministry of Finance admitting the situation …
The blog was in Brussels this week, chairing the ICIS European Purchasing Conference. It was a packed room. Buyers are clearly very concerned about the high level of current raw material prices, and their volatility. I was also interviewed by …
The aromatics market is a very liquid market compared to other chemical markets. It is an excellent leading indicator for industry pricing and volume trends, and forecast the current rally in April 2009. The chart above shows how Brent crude …
The blog spent much of 2007/8 warning of the likely impact of high oil prices on chemical demand. It was then renamed ‘The Crystal Blog’ in November 2008, as the full extent of the problems finally became clear. Today we …
They don’t ring bells at market tops, to warn about what might happen next. But the above chart may turn out to be the next best thing. It shows the relationship between WTI crude oil prices (blue line) versus LLDPE …
China’s Dalian trading suggests trouble lies ahead Read More
The blog has an incredibly loyal following around the world. 24% of its readers visit twice a week, or more. They also recommend it to colleagues. Visitor numbers jumped 50% last month. The issue is the rising uncertainty over the …
Financial markets are different from other markets. And the way we relate to them is different too. Shops, for example, would never seek to win new customers by advertising ‘Prices increased 10% last week’. Instead, they splash red signs across …
Crude oil has been a speculators’ paradise for the past 9 months. Central banks have been making large amounts of cash available at 0% interest. In turn, this has funded larger and larger speculative positions in financial and commodity markets. …
Q1 was a very strong quarter for Western companies operating at the upstream end of the chemicals value chain: • Plants were generally operating well, with few force majeures • Most importantly, the crude oil price jumped 20%. Many buyers …
Last November, the Chairman of the US Federal Reserve justified his $600bn QE2 programme to boost financial markets by claiming “higher stock prices will boost consumer wealth and help increase confidence“, whilst also leading to “lower mortgage rates“. And stock …
US Fed’s QE2 programme hits consumer confidence, raises mortgage rates Read More
The blog’s recent Asian visit revealed considerable anxiety about the state of demand in China. As its blogging colleague, John Richardson, has also described, the country’s lending cutbacks may finally be taking effect. New official figures for lending and electricity …
Sadly, the blog needs to update its March 16 post, which analysed the potential impact of the Japan disaster. Earlier hopes of a quick end to the problems have proved false: • 250000 people are now in refugee accommodation • …
The Potential Impact of the Japan Disaster – an Update Read More
The blog has built great loyalty amongst its readers. 24% visit it twice a week. Recently, as during the 2008 financial Crisis, it has gained many new readers. They also want to better understand developments in the Middle East/N Africa …
The blog has worried for some time about the growing dominance of super-computers in financial markets. Their activities are based on arbitrage between markets, not on fundamental analysis. And their power means that no financial market now knows what it …
Something very strange has been happening to US energy prices over the past 2 years. The chart above shows the ratio between WTI crude oil pricing and natural gas: • It was between 6.0 and 13.0 for 22 years between …
Super-computers party, as energy markets trade at record ratios Read More
EU auto sales remained weak in February, and dependent on just 4 countries. As the chart shows (red line), they followed January in being at the bottom of historical monthly sales. Overall, January and February were down 0.3% versus 2010, …
Japan’s prime minister has described the current situation as “the country’s worst tragedy since World War 2”, whilst the emperor has said he is “deeply worried“. Certainly, never in our working lives have we faced the combination of an earthquake, …
The blog’s recent visit to Singapore included several discussions about the slow start to the New Year in China. And these concerns were confirmed last week in the downturn reported by the OECD’s leading indicators for China (Organisation for Economic …
February’s data on US auto sales contained good news, and not such good news, for the chemical industry. • The good news was that sales were relatively strong, as the chart shows (red line), although still below levels seen in …
The IEA (International Energy Agency) is now very worried about the impact of today’s high oil prices on the global economy. Their chart above highlights the problem for the USA and EU. If oil prices average $100/bbl in 2011, then …
The ICIS weekly margin reports continue to provide essential reading for anyone in the petrochemical value chain. The above chart is particularly fascinating, as it highlights the significant differences between cracker margins on a regional basis over the past 2 …
The fascinating chart above from Dave Rosenberg at Gluskin Sieff confirms the blog’s fears above the impact of today’s high oil prices on US consumer spending. It shows that consumers in the world’s wealthiest econony have very low expectations for …
When China announced that inflation had reached 5.1% in November, the authorities insisted it was only a temporary peak. But this seems less likely today, with January’s inflation still at 4.9%. The surge in food prices is very worrying. They …
Major changes are underway in Western housing markets. They are generational in nature, meaning that we are starting to see a New Normal develop in terms of future demand patterns for chemicals and polymers. The past 30 years have seen …
History doesn’t repeat, but it sometimes rhymes. That was the insight of the famed American writer, Mark Twain. 2 weeks ago, this led the blog to highlight the similarities between the geo-political concerns then developing in Egypt, and the Israel/Iran …
Super-fast computers continue to increase their role in financial markets. They first came into prominence in H2 2009, when the ‘correlation trade’ began. Their role is nothing to do with price discovery, the traditional market function. Instead, they trade on …
Super-fast computers lead financial markets under QE2 Read More
The blog is excited to learn that there should be a good attendance for its first New Normal training Workshop in Singapore. This is being held in association with ICIS, on 24 February. The Workshop aims to provide a comprehensive …
The blog’s Boom/Gloom Index presents a fascinating picture this month. The main Index (blue column) remains strongly positive, in keeping with the solid performance of most stock markets. It confirms evidence from other sentiment indices that investors are optimistic about …
‘Budgeting for Uncertainty’ seemed the best title for the blog’s new White Paper. And already developments in the Middle East are suggesting this could have been a wise decision. As the above chart of average annual oil prices shows, the …
European operating rates (OR%) for ethylene averaged just 82% in 2010, according to APPE data this week. This meant there was no improvement over H1 OR%, suggesting the recovery from 2009’s 76% OR% has stalled. Of course, in terms of …
Last March, the blog highlighted the major changes taking place in ethylene, propylene and butadiene prices versus naphtha. It also analysed them in ICIS Chemical Business in September. The above chart now summarises the 2010 outcome, using European prices to …
US crude oil and product stocks have started the year where they finished in 2010. As the black dot on the above chart from Petromatrix shows, they are at yet another seasonal record. In terms of numbers, they are 101 …
The blog has gained important support for its view that oil prices are too high. and threaten the current economic recovery. In an interview with the Financial Times, the chief economist of the International Energy Agency (IEA), Fatih Birol, has …
“Rising oil prices threaten economic recovery”, IEA Read More
Crude oil prices have been rocketing lately. In turn, they have produced the seemingly ‘strong’ year-end for the chemical industry forecast by the blog in early November. At this point, there is a clear divergence of view. The blog’s bullish …
China’s gasoline at record highs, EU’s close to peak Read More
Oil price rises reduce chemical demand. Initially, as we saw in 2007 – H1 2008, and in 1979 – 80, everything seems fine. Consumers continue to buy, and we all reassure ourselves that demand is still robust. But, in fact, …
Oil prices create European polyethylene “shortage” Read More
What happens if you suddenly double bank lending in a country, and make it equal to 1/3rd of total GDP? And, as part of the experiment, add a further 13% of GDP via a $580bn stimulus programme? We don’t know …
China’s interest rates “have to go up more” – World Bank Read More
Benzene is the blog’s favourite leading indicator for chemical demand, due to its widespread use in the industry. Its recent price movements versus its naphtha feedstock, may therefore be telling us something quite important about changing supply/demand balances. As the …
China’s Dalian futures market has become a hotbed of speculation over the past 2 years, since the government doubled bank lending to $1.4trn during 2009, equal to 1/3rd of GDP. Traders have particularly focused on the assumed linkage between LLDPE …
The styrene business has been increasingly difficult in recent years: • CD and video sales went online, removing the need for polystyrene (PS) packaging • Prices for the main feedstock, benzene, leapt in the mid-2000’s, due to US gasoline market …
Q3 showed no real improvement in European cracker operating rates (OR%). As the chart shows, based on APPE data, these remained at 82% for the Q1 – Q3 period. Of course, this is much better than the 76% OR% seen …
The obvious is rarely a winning strategy in commodity markets. Too many players have inside knowledge to allow anyone to profit from their own position. But now and again, interesting trends do emerge from following how the major players are …
In one of its first posts, at the time of the ill-fated Access deal for Lyondell in July 2007, the blog highlighted the strange divergence that had developed between the front pages of the newspapers, and their business coverage: “If …
The US Fed’s new QE2 Lifeboat programme designed to raise asset prices got off to a bad start last week, with most stock markets falling, rather than rising. It has also begun to run into major opposition from advisors to …
Last week, the blog repeated its warning that crude oil was preparing for a big move, either up or down. And prices then jumped 7%, to a two-year high of $87.49/bbl. So the ‘triangle formation’ proved its predictive power again. …
Chemicals set for “strong” year-end as oil jumps 7% Read More
China’s Dalian futures market has been attracting world headlines recently, with its status as China’s leading market for chemical futures being confirmed. As such, one would expect its pricing for the two major polymers traded, LLDPE (linear low density polyethylene) …
An unnatural calm continues to dominate crude oil trading. Prices may move up or down by $2/bbl or $3/bbl a day, but then they always return to where they started, between the upper red line and the lower green one. …
As promised, the blog is today looking at a key European consumer trend, as part of its Budget Outlook week. 70% of chemical sales are consumer-related, so changes in these trends are very important. Earlier this month, it shared a …
When elephants fight, those around them need to be cautious. And this is the prospect for 2011-13, as the Western countries try to force the BRICs (Brazil, Russia, India and China) to export less and import more, the so-called ‘rebalancing’ …
If you only read one newspaper article this year on the economic outlook, then the blog would recommend Martin Wolf’s recent analysis ‘Why America is going to win the global currency battle’. Wolf is a former EPCA speaker, and he …
The blog’s argument that oil prices are now being entirely driven by financial market speculation has won support from one of the main state oil trading companies. ICIS news reports that the CEO of SOCAR Trading (State Oil Company of …
Oil “would be $30/bbl” without financial speculators Read More
The blog will publish its annual Budget Outlook for 2011 next weekend. And so as usual, its now time to review last year’s Outlook. Past performance may not be a perfect guide to future outcomes. But it is one of …
Natural gas markets, so important in relation to chemical feedstock availability and pricing, are undergoing major change as we transition to the New Normal. The Middle East, which had been in surplus, is now moving to a more balanced position …
The blog’s former ICI colleague, Tom Crotty, aptly summarised the mood of most petchem players at this week’s meeting in Budapest, Hungary, when telling ICIS’ Nigel Davis that “2011 is a very tough call to forecast”. Crotty is this year’s …
Warren Buffett, the legendary US investor once cautioned that “over time, markets will do extraordinary, even bizarre, things.” We are certainly living through such times today. In August, the US S&P 500 Index fell 5%, as investors worried about the …
Business models have been changing over the past decade in the chemical industry, as illustrated in the above chart. Initially, the dotcom era began to put pressure on former ‘specialty businesses’, as customers discovered they were paying over the odds …
Shell focuses on profitable upgrading of hydrocarbons Read More
Investors on Wall Street are no longer bothering with the boring detail of company performance. That’s the conclusion from a new study by Barclays Capital, on the correlation between movements in the S&P 500 and individual stocks. Instead, they are …
This week’s ICIS Chemical Business includes the blog’s article on the changes taking place in global markets for ethylene, propylene, butadiene, benzene and paraxylene. These have a potential impact on buyers and sellers all the way down the various value …
The blog remains very concerned that, overall, the economic policies adopted during the current Crisis are leading the world economy to the worst possible outcome. This outcome is totally predictable. Indeed it has been predicted by reputable experts for some …
Peter Lynch, who managed Fidelity’s Magellan Fund in its great days, once remarked that “the futures and options markets are a giant transfer payment from the unwary to the wary“. This has certainly been the case in oil markets over …
The past fortnight has confirmed the strong linkage between Dalian futures trading, and financial market speculation. Dalian prices (red line) for linear low density polyethylene (LLDPE) rose steadily in early September, as traders bet on higher crude prices. They had …
Oil markets are now in their longest-ever period of contango. This is when prices for future months are higher than current levels. According to Bloomberg, they have now been in contango for a record 656 days. Keeping a barrel of …
Many readers have been taking a well-deserved break over the past few weeks. As usual, therefore, the blog is highlighting key posts during August, to help you catch up as you return to the office. August has been surprisingly busy: …
The Petromatrix report is currently a must-read for anyone seeking to understand what is really happening in crude oil markets. Its latest issue analyses China’s demand. It suggests this is not as strong as the bullish investment banks on Wall …
With the Chairman of the US Federal Reserve saying the outlook is “unusually uncertain“, its time to summon the chemical market genie. Of course, rubbing the lamp is not always successful. And if the genie does arrive, one can only …
Oil markets are an accident waiting to happen for the chemical industry. Oil inventories around the world are close to record levels, with the IEA (International Energy Agency) reporting they are over 61 days of demand. Equally, as the Petromatrix …
Oil prices weaken as inventories continue to build Read More
Current financial and chemical market volatility is a bonanza for good traders, as it gives them more opportunity to take positions, up or down. However, having traded on behalf of a chemical major in Houston, Texas, the blog knows from …
Yesterday, the blog worried that oil prices were well out of line with fundamentals. It argued that momentum trading, highlighted by MF Global’s energy VP, Mike Fitzpatrick, had created a speculative mania. Today, it looks as though Fitzpatrick might agree. …
Anyone who followed supply/demand balances might look at the above chart from oil analysts Petromatrix, and conclude that crude oil markets should be relatively weak today. It shows that US oil stocks are only 2.2mb below the record level seen …
The blog has been revisiting the Bank of England’s 2008 analysis of the likely impact of the financial Crisis. This reviewed 33 banking crises between 1977-2002 and found that: • The average length of each crisis was 4.3 years • …
Undertaking fundamental analysis of a market can be a tedious business. You have to try and understand what uses the product might have, and the alternatives for the feedstocks. You might even have to look at inventory, and forecast future …
As the chart above from Petromatrix shows, total US stocks of crude, gasoline, distillate and jet kero this year (red line) remain very over-supplied in the short term, by comparison with previous years. A major reason for this is the …
Study questions long-only strategies in oil markets Read More
The latest in the American Chemical Society’s 6 monthly ‘Chemicals and the Economy’ webinar series took place last week. It was moderated by former ACS President, Bill Carroll, of Occidental Chemical, and again proved very popular. ACS reported high levels …
The US Federal Reserve and the American Chemistry Council (ACC) have joined the blog in expressing concern about the outlook for the US economy. And as the chart above of the US S&P 500 shows, financial markets have continued to …
Fed, American Chemistry Council, worry about US economy Read More
Paraxylene (PX) has been a great petchem success story over the past 30 years. This 4th post in the blog’s series looks back at its history, and discusses how its future may develop. It is hard to remember that back …
As promised on Saturday, today’s post looks in more detail at the major change taking place in the relationship of propylene to ethylene prices. When the blog joined the chemical industry in the 1970’s, propylene was often regarded as a …
Two months ago, on 8 May, the blog suggested that ‘Sell in May and Go Away” was likely to prove good advice this year. Since then, most major stock markets have fallen dramatically, with the S&P 500 down by 9%. …
The Baltic Dry Index of freight costs (for iron ore, grains and coal) follows changes in global demand for bulk shipping. As such, it is an important leading indicator of future economic activity, and chemicals demand. The blog first noted …
Darwin hit it on the nail when he wrote in ‘Origin of the Species’ that “Unless profitable variations occur, natural selection can do nothing“. His message is echoed today by US Fed Governor Kevin Warsh, one of the few policy-makers …
Home truths about the causes of the financial crisis Read More
6 months ago, the blog suggested that normal seasonal demand patterns could resume in 2010. And it optimistically forecast “a strong H1“, on the basis that “consumers should need to restock ahead of the usual Q2 demand peak in autos/construction“. …
A year ago, the blog launched its IeC Boom/Gloom Index. This was based on the concept that markets are driven by both sentiment and fundamentals. And whilst fundamentals can be understood by analysing hard data (eg auto sales, housing starts), …
The blog’s White Paper, ‘Budgeting for a New Normal’, proved enormously popular when it was published earlier this year. ICIS therefore suggested that it would be useful to update it, 6 months later. This Update is now published. It looks …
China’s Dalian futures market has been the global centre of speculative polymers trading for over a year. It traded an amazing 80 million tonnes of LLDPE in April 2009, as excitement built. And volume (blue line) remained positive on a …
The blog has sometimes despaired of the cheer-leading and wishful thinking of too many leading policy-makers. As I argued in the Financial Times in March 2007, before the Crisis began, “they seem to confuse being market-friendly with being friendly to …
Preparing for an Age of Austerity in public spending Read More
On 6 May, the blog warned that “it would be very nervous indeed about holding a long position” in crude oil. And as the chart shows, its fears were well-founded. Since 4 May: • WTI has fallen 19%, and $16/bbl, …
Crude oil falls as markets reassess economic outlook Read More
Sell in May and Go Away” is the oldest rule in stock market investment. This week has certainly provided further support for it: • The major Western stock markets are down c8% • The major emerging markets are down between …
Markets approach the “drawn-out fundamental downtrend” phase Read More
They say that you learn more from your mistakes than your successes. In the blog’s case, it will never forget the mistake it made when it began to build a long position in early May, soon after arriving in Houston, …
Gasoline stocks at all-time high ahead of US driving season Read More
A year ago, China’s Dalian futures exchange was hitting its peak, in terms of polymer volume. The Linear Low Density Polyethylene (LLDPE) contract saw 80 million tonnes (blue line) traded in April. This was more than 3 times total annual …
The blog’s early career, as a petchems trader in Houston, taught it to look out for moments when prices in one market start to diverge from those of a related product. These can often provide advance warning that a trend …
The chart above, from the insightful Petromatrix report, highlights the on-going divergence between the bullish sentiment driving prices, and the fundamental reality of crude oil markets. It totals US stocks of crude oil and the main products (gasoline, distillate and …
China’s demand has been the main driver for the global chemical industry over the past year. And prices on China’s Dalian polymers futures exchange have been a key indicator of the boom. But now, the rally seems to be running …
Asian PE margins under pressure as oil prices rise Read More
In December, the blog suggested that “2010 might see the industry return to its normal seasonal pattern, with a strong H1, followed by a slow Q3 holiday season, and then a final burst of activity in October/November before the Xmas …
“Crude oil is (now) more than just a physical product“, according to NPRA Chairman William Klesse. As he noted, “Today there is ample crude in the world, and crude is not at $80/bbl because of physical markets“. This was a …
OPEC’s meeting wrapped up quickly yesterday, with Saudi oil minister Ali al-Naimi once again saying oil prices today were “beautiful“. This highlights sentiment’s ability to take prices in the opposite direction to fundamentals. For certainly, on fundamentals, OPEC should have …
CFO’s have a lot to think about currently. Volatility is rising in currency and oil markets. Plus credit risks on previously safe ‘sovereign’ debt markets are also increasing. Today, for example, there are new concerns that investors in Dubai World’s …
Iran has begun storing crude oil offshore again, according to Bloomberg, as demand in its major market, Japan, enters a seasonal slowdown. It has 6mbd on ships in the Persian Gulf (equal to 19% of current storage for the WTI …
One can only feel sorry for China’s government leaders. A year ago, they faced 23m unemployed, as their export markets collapsed in the West. In order to avoid major social unrest, they opted to unleash what the Wall Street Journal …
SOURCE: WWW.CHARTOFTHEDAY.COMUS consumers were responsible for 16% of total world GDP in 2008. But their spending is taking a battering from the combination of high unemployment and high oil prices. Both are reducing end-user demand for chemical products. New government …
The oil market rally seems finally to be running out of steam. For months now, it has been driven by the ‘correlation trade’, whereby Wall Street traders sell the US$ and buy crude oil. But as the chart shows, the …
Sometimes, a picture is worth 1000 words. That’s the case with this photo (used by most of the world’s major news media), showing President Obama with former US Fed Governor Paul Volcker by his side. Volcker’s re-emergence is the first …
The Dalian polymers future market had a strong end to 2009. As the chart shows, Linear Low Density Polymer volumes (blue line) jumped to 44 million tonnes. The new PVC contract saw the same volume. But there are growing signs …
Pity your poor Purchasing Director this week. They know the West is having a cold winter, but they have done their analysis and can show you slides, such as the one above from Petromatrix, that indicate the US has the …
Chemical company CEOs need to act on high oil prices Read More
Blog readers have a wide range of interests. That is clear from the list below of the Top 10 posts in 2009. It also confirms the complexity of the chemical industry, and its fascination. In alphabetical order, it is as …
The Financial Times’ Investment Editor argues this week that “there is no point in forecasting stock market performance to the last digit“. Instead it presents 3 scenarios for 2010: • Standard Bear Market. This view suggests that the current rally …
Extended downturns, of the type that we are now suffering, generally mark a transition period from one set of business conditions to another. I look at what might be in store for us during this transition, in this week’s edition …