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Volatility of polymer prices reduces in 2009, the year of recovery amid economic prudence |
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The year 2009 began with America�s first African American President - Barack Obama taking charge in the midst of an economic recession. Through the year, Obama worked to straighten up the failing US economy, growing joblessness, a housing crisis, healthcare reforms that denied coverage and claims, two wars and much more. The global financial markets went through a roller coaster ride in 2009. The crisis peaked in March when Wall Street's key indicator Dow Jones, fell for the first time in over 12 years to below 7,000 points. Around that time, USA�s Federal Reserve System launched a US$200 bln consumer aid plan to ease the deeper-than-anticipated crisis that immobilised equity and exchange markets that seemed possible to reverse only through recovery plans and major cuts in interest rates. This caused Central banks and governments to take charge of the situation to try to curb the declines, leading to the launch of major programs to buy back banks' unsaleable assets as well as lower and sustain interest rates at historically low levels. The main world economies like United States and the Eurozone came out of the recession as summer 2009 ended. As currency exchange markets are strongly correlated with stock exchanges, the dollar has also experienced a volatile year. Persistent weakness of the dollar has also buoyed oil prices, which have more than doubled in 2009. The weak dollar induced emerging economies to diversify their dollar reserves with gold, propelling gold prices to a historic high of US$1226 an ounce at the start of December.
After a disastrous 2008, the year 2009 does not appear to be any better economically. IMF, in its midyear review, predicted World GDP to shrink by 1.4% in 2009 compared to 1.3% in 2008. With 23% share of the World economy in 2008, USA, the largest global economy with GDP of about US$14 trillion has clocked GDP growth of 2.8% and 2.2% in Q2-09 and Q3-09 with support from stimulus packages given by US government. Europe appears to be showing a decline in GDP growth in 2009. European Commission, in its press release of November 2009, estimates a 4% decline in economy. Japan is expected to show a steep decline of 6.6% in 2009 according to a Trading Economics press release. Latin America and Caribbean region is expected to decline by 1.9 % in 2009. IMF has predicted lower GDP growth for China and India in 2009. India�s finance ministry has recently projected a GDP growth upwards of 7.75% for 2009-10, hopeful of clocking a better performance in industry and service sectors in the second half of this fiscal. China has up-revised its 2008 growth rate to 9.6%, taking it well above the originally reported 9% after calculating that the service sector had been more productive than anticipated. This indicates that the financial stimulus packages given by Chinese and Indian Governments have indeed worked in enhancing economic growth in 2009. More accurate economic growth data would emerge some time in Q1-2010. While USA, Japan and EU are expected to produce low or even negative GDP figures for 2009, Asia�s bold GDP run is expected to slow to 5.3-5.5% according to predictions by various research organizations.
| 2009 Global GDP Growth Predictions |
| Country |
2007 |
2008 |
2009 f |
| China |
11.9 |
9.4 |
7.5 |
| India |
9 |
6.3 |
5.8 |
| Vietnam |
8.5 |
6.2 |
5 |
| Thailand |
4.8 |
4.6 |
3.6 |
| Russia |
8.1 |
6 |
3 |
| Brazil |
5.4 |
5.2 |
2.8 |
| South Korea |
5 |
2.5 |
0.7 |
| Japan |
2.1 |
0.5 |
-0.1 |
| U.S |
2 |
1.4 |
-0.5 |
| E.U |
2.6 |
1.1 |
-0.6 |
| f = forecasted |
Source : World Bank |
Most economists and experts believe that the worst is over and there is a discerning recovery all around the World. Supported by fiscal and monetary policy, as well as government legislative intervention, the global economy is showing signs of recovery. However, recoveries are not yet truly self-sustaining as job markets generally remain very weak, leading to restrained growth in consumer spending. It is projected that major economies will remain in expansion mode, but the pace of recovery will remain painstakingly slow.
Price volatility in 2009
Oil prices peaked to US$147/barrel in July 2008, and slid to less that US$40 in December 2008. Oil prices, after touching all time high in 2008 started declining from Q4-08 and plunged as low as US$37/barrel in February 2009. A wild fluctuation in oil prices from US$37-77/barrel was seen in 2009. The average price remained on the higher side of the range. Overall, crude oil prices averaged US$60.6 per barrel in 2009.
Polymer price fluctuations in 2009 were not as volatile as in 2008, but fluctuated about 40-65% from the minimum to maximum levels. LDPE price fluctuations were on the higher side while LLDPE, PP and PVC were on a lower level. It is quite possible that 2010 may also see price fluctuations but they could be lower than levels of 2008 and 2009. The massive petrochemicals capacities due onstream in 2010 in the Middle East and China are likely to lead to a supply glut, leading to erosion of margins for polyolefins players in the Middle East and India compared to 2009. The healthy margins these producers enjoyed in 2009 on account of persistently high prices on robust demand from China could diminish in the New Year. Oversupply is a key cause of concern for producers in the Middle East and India. Prices of PP and PE are therefore expected to stabilise or even ease as compared to 2009 levels with the easing of supply. As oil prices firm up in line with recovering economies and reduced inventory levels in USA, naphtha, ethylene and propylene are also closing the year 2009 on an optimistic note. A firm start is expected for polyethylene in global markets amid persistently rising feedstock costs. In the last week of December 09, naphtha prices in Asia have peaked to a four-week high as strong fundamentals continue to boost sentiments.
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