Global demand is a constant slow, never the less chemical industry capability is constantly increasing.
As a result, the gluts of supply area unitary expected to seem in several key areas as we tend to get into the half of the year. That’s the recent drawn key conclusion from the newest American Chemistry Council information for world chemical capability and production.
The first reaction that comes out of this is generally that this cannot be believed to be true. As the reason for the margins being strong so far, which they have been this year for real, is the rise in prices of oil and not that the demand is strong.
An increase of approximately 87% has been recorded in the oil prices since mid of January when Brent bottomed at $27/bbl. As a result of which there has been a tremendous incentive available to the respective buyers for building the inventory. Inventories are recorded to be at near-record levels as a fact, and this rise has not occurred due to the occurrence of any kind of shortages. Whereas, the reason for this rise is expected to be the pension/hedge fund speculation over the outlook for US interest rates and hence the value of the US dollar is at a high.
Rising oil costs forever lull the trade into a state of satisfaction. Demand seems to extend as oil costs rise, and that we assume this is often owing to a strengthening economy however in reality, it’s nearly always because of consumers building stock prior to future value rises. They are aware that the costs are going to be higher next month, in order to avoid the repercussions of this increase they rush to beat the inevitable increase.
The comparative figures and data depict how the central banks have fooled the global chemical industry for the previous 5 years. The central banks have maintained a view that demand is about to return to previous Super Cycle levels, and they have shared and spreaded the same as well. The industry has thereby kept building new capacity at the same rate as in the Super Cycle Capacity and has therefore risen by around 15% since 2012.But the demand has risen only by over 8% over the same period of time. If the pension/hedge funds decide to reverse their strategies it would mean that H2 could be very difficult indeed.
The Chemical Industry has risen and the impact of slower global demand has caused no hurdles in its rise!