concerns mount as late stage of the business cycle plays ... · and cost advantages, to capture...

By Nigel Davis

CoNCerNs mouNt as late stage of the BusiNess CyCle plays out after epCa 2018

Copyright 2018 Reed Business Information Ltd ICIS is a member of RBI and is part of RELX Group plc ICIS accepts no liability for commercial decisions based on this content

By Nigel Davis OctOBer 2018

POst ePca thOughtsCoNCerNs mouNt as late stage of the BusiNess CyCle plays out

Chemical producers and their customers are obviously concerned about how the late stage of the current business cycle will play out

Producers have performed remarkably well as fiscal stimulus has continued to buoy downstream demand while they have been effective at passing on higher crude oil related costs

Production capacity is expanding in some product chains however and imports to Europe are expected against the backdrop of the US-China trade war

Economic forecasts are being ratcheted down impacting demand projections

Clearly there is nervousness about the way the next few months might pan out

At the annual European Petrochemical Association (EPCA) meeting in Vienna earlier in October producers were talking of customers holding back on purchases wondering about future demand in their markets and the direction of the oil price

In some respects this is a glass half fullglass half empty moment for players in Europe Business confidence indicators show that as does sentiment on the ground

How much product is in inventory Winding down stocks towards the year-end slows demand growth anyway But who will come back into chemical markets in December ndash and why

The stock price collapse last week reflected the nervousness in physical markets as the realities of the US-China trade war and issues specific to Europe such as the threat of the UKrsquos departure from the EU or Brexit in 2019 become more widely apparent

While the US economy has continued to perform strongly indicators in Europe are pointing to lower growth Chemical markets in Asia will suffer from the US-China trade dispute

Chemical companies might expect to weather the uncertainty but they have to be mindful of the potential for a serious downward shift in demand if customers react strongly to more negative sentiment and are

prepared to spend less

Chemical companies have used good times to generate the cash they think they need to expand to build on feedstock and cost advantages to capture greater market share and to plan capacity to improve raw material self-sufficiency Tougher times in terms of market growth will test the appetite for further capacity growth

Chemicals capacity utilisation is falling again and the question has to be asked whether this is indicative of the short term or a longer-term trend The outlook is always very different as markets turn and the prospects of a more

Source American Chemistry Council


recessionary environment become more widely apparent

The data point to a downward trend The American Chemistry Councilrsquos Global Chemical Production Regional Index (Global CPRI) was down 03 in August following a strong second quarter ndash and a weak first quarter The declines were across the board regionally although there were some brighter spots

The rate of chemicals production growth this year to August on a three-month moving average basis was only 12 largely due to the Q1 softness

Production has fallen back in Europe but has continued strongly in North America It is down sharply in China and across Asia Pacific as a consequence

Globally chemicals capacity utilisation fell by 05 points in August to 839 This is from 859 in August 2017 and below the long-term (1987-2017) average of 865

of capacity (3MMA)

GLOBAL CHEMICAL CAPACITY UTILISATION


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Nigel Davis is Insight Editor with ICIS a course director with ICIS Training and a

regular contributor to ICIS News Nigel has been analysing and writing about the chemical

industry for many years the Insight column providing daily commentary on the sector its

markets and companies

Nigel Davis icis eDitOr

aBout the author

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Videos by iCis editorial at epCa 2018

Nerves are simmering over new rules to slash sulphur content in bunker fuels from 1 January 2020 Senior Editor Vicky Ellis gives a snapshot of the mood at EPCA52

Deputy Managing Editor Helena Strathearn discusses hot topics for Q4 in the European aro-matics markets at EPCA52 in Vienna

Senior Editor Chris Barker talks about the potential for US caustic soda exports to Europe ndash a topic on the mind of players at EPCA52 Meanwhile European Q4 contract discussions have started at this yearrsquos conference in Vienna


By Nigel Davis OctOBer 2018

POst ePca thOughtsCoNCerNs mouNt as late stage of the BusiNess CyCle plays out

Chemical producers and their customers are obviously concerned about how the late stage of the current business cycle will play out

Producers have performed remarkably well as fiscal stimulus has continued to buoy downstream demand while they have been effective at passing on higher crude oil related costs

Production capacity is expanding in some product chains however and imports to Europe are expected against the backdrop of the US-China trade war

Economic forecasts are being ratcheted down impacting demand projections

Clearly there is nervousness about the way the next few months might pan out

At the annual European Petrochemical Association (EPCA) meeting in Vienna earlier in October producers were talking of customers holding back on purchases wondering about future demand in their markets and the direction of the oil price

In some respects this is a glass half fullglass half empty moment for players in Europe Business confidence indicators show that as does sentiment on the ground

How much product is in inventory Winding down stocks towards the year-end slows demand growth anyway But who will come back into chemical markets in December ndash and why

The stock price collapse last week reflected the nervousness in physical markets as the realities of the US-China trade war and issues specific to Europe such as the threat of the UKrsquos departure from the EU or Brexit in 2019 become more widely apparent

While the US economy has continued to perform strongly indicators in Europe are pointing to lower growth Chemical markets in Asia will suffer from the US-China trade dispute

Chemical companies might expect to weather the uncertainty but they have to be mindful of the potential for a serious downward shift in demand if customers react strongly to more negative sentiment and are

prepared to spend less

Chemical companies have used good times to generate the cash they think they need to expand to build on feedstock and cost advantages to capture greater market share and to plan capacity to improve raw material self-sufficiency Tougher times in terms of market growth will test the appetite for further capacity growth

Chemicals capacity utilisation is falling again and the question has to be asked whether this is indicative of the short term or a longer-term trend The outlook is always very different as markets turn and the prospects of a more








of capacity (3MMA)



70

75

80

85

90

95

100

171513110907050301999795939189






aBout the author
















of capacity (3MMA)



70

75

80

85

90

95

100

171513110907050301999795939189






aBout the author










concerns mount as late stage of the business cycle plays ... · and cost advantages, to capture...

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