By guest contributor Paul Hodges
I suggested in an earlier post that chemical prices were an excellent leading indicator for the health of the global economy. The data highlighted that firms were finding it difficult to pass through crude oil related price increases. In turn, this was a warning that both the global and Chinese economies might be slowing faster than generally supposed. This caution since seems to have been amply justified.
Thus a new initiative by the American Chemistry Council (ACC) deserves watching. The ACC is the trade body for the US chemical industry, and it has developed a new Chemicals Activity Barometer which aims to provide early warning of changes in the wider US economy.
by guest contributor Paul Hodges
Shale gas developments in the US have sparked a wave of euphoria about the opportunity for a renaissance of its domestic manufacturing base. Petrochemicals should be one of the main beneficiaries, as the ethane produced from shale gas discoveries now provides the US with some of the cheapest feedstock in the world.
Major producers including Dow Chemicals, Shell and Chevron Phillips have already announced plans to build new ethane-based capacity. Others are likely to join them. Current estimates suggest total US ethylene capacity could therefore increase by 25 to 30 percent from today’s 27 million tonnes.
However, one key factor has the potential to spoil the story – much of this new capacity will need to be exported in the form of polyethylene (PE) and other major plastics. Yet as the chart shows, based on data from Global Trade Information Services, US net PE exports have actually been declining since 2010, even though its cost advantage from shale gas was increasing.
By Paul Hodges
Chemical prices might not be the first forecasting indicator that springs to mind, but over the recent economic crisis benzene in particular has highlighted economic shifts well before more traditional metrics.
Benzene’s 40 million tonnes of global sales are a key raw material for a very diverse group of end-products, including polystyrene cups, nylon clothing and carpets, pesticides and dyes. Equally, as it is produced from crude oil, benzene provides a highly-sensitive barometer of consumer reactions to changing energy prices.
A key metric is its price premium to naphtha (its oil-based feedstock). The chart above shows this metric since the crisis began in (using ICIS pricing data).
• Typically, the premium has found a floor at $150/tonne
• But it collapsed during October 2008, remaining very weak until February 2009
• The depth of the downturn was also demonstrated by the premium becoming a discount
• It then staged a sharp recovery, which took it back above the $150/t level
Therefore, benzene highlighted, well ahead of other indicators, both the downturn in the wider economy and the equally sudden upturn. Its recent performance therefore merits close attention.