07 November 2008 16:50 [Source: ICIS news]
By Nigel Davis
This sort of impact is being seen across most markets and most companies. The financial reports from numerous producers in very different markets suggest as much.
Belgium-based caustic and PVC profile maker Tessenderlo warned of the impact of collapsed raw material prices on volumes in the fourth quarter.
It is difficult to anticipate the affect on margins of price fluctuations on a scale never experienced before, it said.
Producers across the sector are affected by the deepening recession and customer-specific problems. Look downstream from chemicals and major end-user industries, such as autos, are cutting back hard as consumers tighten their belts.
There are numerous examples. Automobile sales in the ?xml:namespace>
Chemical companies may well be forced to follow suit.
This is still largely a commodities business driven by the price of oil on the one hand and the demand within manufacturing industry for (industrial) raw materials, on the other.
The credit crunch is driving the recession deeper. Commodities producers, such as steel maker, Arcelor Mittal have been forced to reduce output - it announced on Wednesday a 30% cut in production that will hit its
In the most exposed markets, chemicals and plastics makers are being stung into action.
SABIC Innovative Plastics also on Wednesday said that it would cut back production of thermoplastics - it makes acrylonitrile butadiene styrene (ABS) plastics and polycarbonate - by as much as 20%, effective immediately.
Upstream chemicals production has been cut back. Polymers producers are running at much reduced operating rates as prices have been falling sharply while demand drops away.
It is impossible to tell now how deep and the cutbacks might be, and for how long.
However, chemicals appears to have been a hard hit sector, with the decline in demand being more precipitous than most can have expected.
The inventory effect of a few weeks ago has given way to the understanding that demand, which has been weakening through much of the year, has turned down sharply since September.
There is little prospect of any upturn, or much relief, until the start of 2009 at the earliest.
The global economic downturn will hit harder in
For every company, however, cashflow management becomes vitally important. And it is now that critical decisions are being made to cut production back further or to simply shut down until operating conditions improve.
Some will be able to survive this slump suffering less damage than others. This downturn will test other companies’ cash generation abilities to the full. The most astute and those with the strongest balance sheets will be best placed.
Many companies seek to preserve cash towards the end of the year and take an extended holiday period. In 2008, expect that holiday period to begin early.
Some chemical plants in
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