As is usual with the end of a quarter the market is flooded with a wave of earnings reports from a whole host of listed companies; from owners, to charterers – to brokers even! For many, particularly the general public, reporting seasons pass by having little impact on our daily lives but for numerous in the industry such reporting seasons are of real significance to show how a particular market is performing.
The last 9-10 months have seen a much discussed drop in crude oil prices due to increasing levels of production in the US and from the OPEC nations but there being concern over waning demand to use it. This coupled with global economic uncertainty, particularly in the Eurozone—Greece!, Japan, China and several other developing countries means we have been faced with a rather gloomy outlook from some areas to say the least!
For those of us involved in the world of Specialised Products the latest reporting round from the chemical majors made for some interesting reading. We know that with a decline in oil prices and therefore chemical prices, majors have generally suffered a dent in their margins with buyers facing reduced value chains and inventories halving in value also. Therefore from the start, results expectations were not particularly upbeat. We saw towards the end of last year and at the very beginning of this year, some companies announcing cost cutting and consolidation measures which were in part a reaction to stymy the impact from the fall in oil prices. However, when the starting gun fired at the beginning of April and the markets were greeted with early morning earnings announcements things were not quite as gloomy as the doomsday brigade may have predicted. For example, we see that BASF reported slightly higher volumes for its intermediates business in the quarter but lower volumes for its monomer and petrochemicals business. Whilst Shell continued to suffer from problems with its cracker at Moerdijk and reported that chemicals sales volumes were down 2% year on year. Meanwhile, general the downstream sector seems to be in better shape due to healthier demand levels. We see that Bayer’s MaterialScience division reported an overall volume improvement here whilst Huntsman’s MDI volumes increased in the Americas and in Europe. It looks as though the industry “has been riven by the drop in product prices but, at the same time, buoyed by lower liquid feedstock costs”, so says ICIS. This coupled with a weak Euro has lifted European based producers while hurting the US based ones. We see this in BASF’s report once more where its chemicals segment prices dropped by 16% and sales fell by 12% but the positive impact due to the currency effect was 8%, therefore resulting in improved margins in Europe – gross Q1 chemical earnings were up 21% to Euro 726 million.
This paints quite an interesting picture for all of us involved in Specialised Products. The latest Reuters Oilpoll (drawn from investment banks) for April, forecasts an average 2015 Brent crude oil price of USD 59.4 per barrel and an average 2016 price of USD 70.8 per barrel. This pricing is not always accurate with the oil price being so closely linking to global events and other factors but it does tell us that things may not be as dreary as they once looked. Lower oil prices in the long term boost consumer demand and drives global growth and as Specialised Products markets are so closely linked to the end consumer then further good news for producers, traders and owners may be on the horizon. Of course, in the short term, things are still uncertain but the future may now be a little brighter than it was at the beginning of 2015!