May ICIS Chemical Market Confidence Index shows strong growth sentiment

27 May 2016

Mark Victory

European petrochemical market sentiment is strongly bullish going into June, with business conditions, order book volumes and profitability all expected to rise over the next 12 months, according to analysis of ICIS European Chemical Market Confidence Index (CMCI).

The newly established index aggregates sentiment from hundreds of market players actively involved in buying and selling chemicals across more than 60 different markets.

All indicators rose in May, with the exception of current profitability compared with 12 months ago, showing that the market currently has strong confidence in European market growth, despite continued global macroeconomic risks. 

The findings are in stark contrast to Markit's eurozone PMI which hit a 16-month low in May, and despite a 1% fall in March month-on-month EU chemicals production, according to Eurostat.

May Europe CMCI in graph form

The difficulties of managing profitability amid volatile crude oil prices, currency and stock markets, and global macroeconomic uncertainty are all shown in the fall in the perceived fall in profitability of the petrochemical markets compared with one year ago.

Nevertheless, despite continued challenging conditions caused by upstream volatility and uncertainty, profitability in Europe is expected to grow, although, understandably, confidence in growing profitability is lower than confidence in order book volume growth.

The impact of global volatility is perhaps also shown in the broadly neutral – albeit marginally favourable – sentiment on business conditions compared with 12 months ago.

Confidence in higher order book volumes in the next 12 months is strong, likely supported by persistent growth in key end-user markets such as automotive. EU new passenger car sales, for example, hit an 8-year high in April, according to data from the European Automobile Manufacturers Association (ACEA).

Although the market is broadly bullish, there are sharp difference in sentiment depending on position in the market.

Buyers, for example, overwhelmingly believe that business conditions have improved compared with 12 months ago, while traders strongly believe (although not as emphatically) that business conditions have worsened.

Producers are the most bullish on improved and improving order book volumes, and increasing profitability in the next 12 months, while traders are the most bearish on order book volumes (although they do believe that the next 12 months will see growth), while buyers are the most bearish on future profitability, with the majority believing that profits will fall over the next 12 months.

The findings were unanimous, albeit with differing strength of feeling, that business conditions and order book volumes will improve in the next 12 months, and that profitability is currently lower compared with the last 12 months. More detailed producer, buyer and trader CMCI data will follow in separate news stories.

In its economic forecast published on 3 May, the European Commission – the EU's executive body – expects economic growth in Europe to remain modest as the performance of some of its key trading partners' has slowed and some of the so far supportive factors start to decline.

Consequently, the Commission predicts the 19-country currency union's GDP to grow at 1.6% in 2016 and 1.8% in 2017 after it rose 1.7% in 2015.

Similarly, GDP growth in the EU as a whole – 28 countries – is expected to fall slightly from 2.0% last year to 1.8% in 2016 before reaching 1.9% in 2017.

All member states economies are likely to expand in 2017 but growth is still expected to remain uneven across the EU and will largely depend on domestic demand as the eurozone will keep struggling with its net exports.

With regards to employment, the Commission's forecast expects the current slow improvement in the labour market to continue, supported by recently implemented reforms and fiscal policy measures.

Unemployment in the eurozone is expected to fall to 10.3% in 2016 and then 9.9% in 2017, compared to 10.9% in 2015. In the EU as a whole, unemployment is expected to fall from 9.4% in 2015 to 8.9% in 2016 and 8.5% in 2017.

After having announced fresh stimulus measures in March, the European Central Bank (ECB) decided late April to leave its key interest rates unchanged.

During a press conference, ECB’s president Mario Draghi said the ECB’s policies “work, they are effective. Give them time to display their effects” and added the ECB was ready to take fresh action if needed, and that all policy tools were on the table.

Seasonally adjusted GDP rose by 0.6% in the eurozone and by 0.5% in the EU during the first quarter of 2016, compared with the previous quarter, according to a preliminary flash estimate published by Eurostat.

In the fourth quarter of 2015, GDP grew by 0.3% in the eurozone and by 0.4% in the EU. Compared with the same period last year, seasonally adjusted GDP rose by 1.6% in the eurozone and by 1.7% in the EU in the first quarter of 2016, after an increase of 1.6% and 1.8% respectively in the previous quarter.

The CMCI runs from +100 to -100, with zero on each index representing neutral, or uncertain conditions, a negative score indicating bearish expectations and a positive score representing bullish expectations.

The indexes also gather sentiment on the comparison between the current situation and the situation across the past 12 months to give a complete picture of current market conditions and confidence.

Additional reporting by Vasiliki Parapouli and the ICIS Europe editorial team

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