Rate cuts aim to boost confidence as industry suffers

09 November 2001 12:19  [Source: ICIS news]

Interest rate cuts from the Bank of England* and the European Central Bank (ECB), and Saudi Arabia’s calls for a deep cut in Opec (Organisation of Petroleum Exporting Countries) output, highlight the fast growing fears of a global recession. Further rate cuts in Europe can be expected as attempts to restore consumer confidence gain pace. Bad news about the economy grows seemingly by the day.

The manufacturing sector continues to be hit the hardest in this now global downturn. News from the US is hardly any better than that from Europe. Certainly, the chemical industry is bearing the brunt of the manufacturing recession and is suffering greatly from the wider effects of the strong dollar. On the domestic front, producers are hit by the slump in demand in key sectors such as automobiles and electronics that has pushed operating rates down sharply. There was some relief in mid-year from lower natural gas prices, which have a knock-on effect on natural gas liquids (NGL) feedstock costs, but prices have risen again. The collapse in oil prices has hit the US chemical industry's international competitiveness in comparison with predominantly naphtha-fed European crackers.

Of course, it is not just petrochemicals that are affected. The now more global economic downturn has hit basic chemical prices but has begun to bite into profitability in speciality chemicals, pharmaceuticals and agrochemicals.

US chemical industry economic analysis has tried to make sense of the impact of the terrorist attacks but with little apparent success. This only adds to the heightened level of uncertainty that surrounds the sector.

Economic statistics for October are only just being released and more data will be needed before analysts feel at all comfortable with the figures. American Chemistry Council (ACC) analysts, for instance, point to somewhat higher rail car loadings, in other words an increase in chemicals transport across the states, for late October compared with the summer (Q2/3) period. The data aren’t seasonally adjusted but they suggest that basic chemicals production is ‘holding up’. Basic chemicals shipments apparently haven’t fallen off the edge of the cliff, yet, the ACC suggests, but times are tough to say the least.

The hunt is on for positive economic and industry data but the trend is overwhelmingly downward. Short term scenario analysis is probably the most robust in the current environment of heightened uncertainty. Within a week or so, the ACC says it expect to publish two scenarios for the US economy and its chemical industry taking into account the unprecedented attacks of 11 September and subsequent events.

*The UK’s Chemical Industries Association still does not feel that the Bank of England has gone far enough with its latest interest rate cut of 0.5%. The Bank of England’s monetary policy committee (MPC) has been charged by the Chancellor of the Exchequer to aim towards keeping monthly retail price index growth at 2.5%, the CIA’s director general, Elliot Finer, says, but the MPC has undershot that target 29 times over the last 30 months. Finer claims MPC bias against manufacturing industry which he says has suffered the most from the current downturn through the strength of sterling against the euro.

By: Nigel Davis
+44 20 8652 3214

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