Submitted by Taps Coogan on the 15th of April 2019 to The Sounding Line.

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Paul Hodges, chairman of International eChem, recently spoke with Real Vision in a wide ranging interview about his outlook on the global economy based on a host of chemical industry consumption data. He warns of oversupply amid slumping global consumption leading to significant deflationary pressures.

Paul Hodges:

“We look at the world, the world economy, through the lens of the chemical industry. Why do we do that? Because the chemical industry is the third largest industry in the world after energy and agriculture. It gets into every corner of the world. Everything in the room in which you are watching this interview is going to have chemicals in it and the good thing is we have very good, almost real time, data on what’s happening… Whereas, if you look at IMF data you are looking at history, we’re looking at… what’s going on as of today… We particularly look at autos, housing, and electronics because those are the big three applications…”

“You would normally expect the first quarter to be fairly strong and the reasons for that are the first quarter, this year particularly, was completely free of holidays. Easter was late so there was nothing to interrupt you there. There was the usual lunar year in China but that always happens so there’s nothing about that, and normally what happens is that in the beginning of the new year people restock. They got their stocks down in December for year end purposes and tax purposes. Now they restock again and they build stock because the construction season is coming along in the spring and people tend to buy more cars in that period, and electronics, and so on. And so everything in the first quarter was very positive and one normally wouldn’t be surprised to start seeing stock-outs in the industry, particularly after a quiet period in the fourth quarter and unfortunately we haven’t seen any of that… We’ve seen a 25% rise in the oil price because of the OPEC/Russia deal but we haven’t seen the normal stock build that goes along with that… When the oil prices goes up, people in the chemical industry know that the price of chemicals is about to go up as well because oil is so important and so is gas. So they tend… to say ‘oh no the price is going up, we need to buy in April because the price in May will be higher.’ Now, that should have happened, but it didn’t. This is the first time I can ever remember that not happening… It can only be because end user demand is actually quite weak. So the sales team are saying ‘you know we’ve actually got quite a stockpile already, we probably don’t need to go after it.’ That’s where we are at the moment.”

“… The smartphone market has gone into recession for the first time. So clearly that trend, which has been very very powerful over three of four years, and followed on from previous trends, has now run its course. And there isn’t actually anything else that we can see that is coming along…”

“If you look at autos, we follow the top seven markets which are sort-of 70-80% of the total (market), and of those only one was up in the first few months of this year: Brazil. All the others: China, the States, Europe, Russia, India, Japan, and so on, they were all down. Some of them by not very much, China by quite a lot… At this point, most of the data is pointing in the same direction and it’s not terribly optimistic…”

“… Oil demand growth is not surprising on the upside anymore which is why OPEC/Saudi are having to intervene in order to take product off the market. So that tells you first, things are not as strong or powerful as people think. The second thing is: can they maintain that position given what is going on in the rest of the market? And… if we look at producer price inflation in China, it is touching zero and if it wasn’t for the swine-fever problem keeping pork prices up, it would probably be negative… If you put together a resolution of the swine flu problem and therefore a move by China into deflation, together with a fall in the oil price, you will have deflation across the western world, and you’ll have that as you go into the end of the year. And there will be nothing that the central banks can do about that… Now, I don’t think they’ll stop. I’m sure they’ll get ‘helicopter money.’ I’m sure that’s what we’re talking about with ‘Modern Monetary Theory…'”

There is much more to the interview, so enjoy it above.

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