Chemical price oil rally – Commentary: Chemical price surge in absence of oil rally signals demand in play - Arhive

Indeed, supply issues have plagued a number of these individual products – scheduled maintenance, force majeures, and even weather-related shortages in competing material in the case natural rubber and BD.Chemical price oil rally

Yet there is something else at play. In our cover story (see page 9), you will see the regional ICIS Petrochemical Indexes (IPEXs) for the US, Europe and Asia moved higher in January. They will likely surge even higher in February. Chemical price oil rally

Importantly, this is happening in the absence of a major rise in crude oil.

Crude oil may be flat or even lower in February versus January. But the IPEXs are all likely to shoot higher if the current trend persists.Chemical price oil rally

Tightness is the key word in today’s chemical markets, prevailing across many products. As mentioned, supply has been an issue in several markets.

But the tightness also points to stronger demand.Chemical price oil rally

Despite weak headline GDP numbers, manufacturing activity in the US and Europe is surging, according to the purchasing managers’ indexes (PMIs).

Key manufacturing PMIs hit 56.0 for the US (ISM) and 55.2 for the eurozone (Markit) in January – both improvements over December.

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US Fed chair Janet Yellen sees economic momentum

Any PMI reading above the 50 mark indicates expansion while below 50 indicates contraction.

China has had a choppier performance with a January reading of 51.0 on the Caixin manufacturing PMI – down from December but still pointing to expansion.

Economic acceleration in the US is evidenced by the central bank’s renewed focus on raising interest rates rather than expressing caution about downside risks.

US Federal Reserve chair Janet Yellen took a hawkish turn in her Senate testimony on 14 February, reiterating the need to raise interest rates and stating that waiting too long to do so would be “unwise”.

In December 2016, the Fed signalled its intention to raise rates three times in 2017.

In her latest remarks, Yellen cited a strengthening US labour market and inflation moving up towards 2%, in line with expectations.

US Treasury yields rose on the greater probability of a rate hike sooner rather than later.

Yet the equity markets were not spooked and continued to rise on prospects for a healthier economy.