03 December 2008 04:00 [Source: ICIS news]
DUBAI (ICIS news)--Concerns over a near-term supply glut and a global slowdown in demand for petrochemicals have been overblown with fear in the markets driven by negative headlines, said Hassan Ahmed, managing director of HSBC’s chemical research arm, on Wednesday.
Stress testing of demand and supply fundamentals still suggest a “normal” or mid-cycle margin year in 2009, Ahmed told delegates at the 3rd Gulf Petrochemicals and Chemicals Association (GPCA) forum.
Profitability over the next 12 months should also be at or near mid-cycle levels even if we factor in a global recession, he added.
Ahmed’s stress testing mode,l which incorporates a contraction of 1.4% in ?xml:namespace>
Global chemical players have raised fears of a severe overcapacity situation next year as mutiple
Estimating the net debt to capital ratios of various European, US and Middle Eastern chemical companies, he said their balance sheets remain in relatively good shape and had been largely shielded from the direct impacts of the credit crunch.
However, a cyclical deep trough in the medium term was inevitable as a result of the large
Shutdowns of marginal producers in the US and western Europe would also aid the recovery of the industry, he added.
He concluded that the long-term profitability of the sector did not “paint a pretty picture” as estimated operating margins of the industry of a whole declined from more than 13% in the 1960s to roughly 6% in 2000.
“Consolidation, innovation, integration and relocation will be the key determinants to success,” Ahmed said.
The three-day 3rd GPCA forum ends on 4 December.
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