Downturn to plague chems until 2011 - consultant

25 March 2009 23:28  [Source: ICIS news]

HOUSTON (ICIS news)--The worst economic downturn since 1938 will persist and a sustainable recovery will not come before the end of  2011 at the earliest, the president of a petrochemical consultant firm said on Wednesday.

“Chemical production has fallen off a cliff,” said Gary Adams, president of Chemical Market Associates Inc. (CMAI). He spoke at the company’s 2009 World Petrochemical Conference, held in Houston.

The petrochemical industry is suffering from excess capacity at a time of falling demand, he said.

Last year, consumers were hit with escalating fuel costs and a weakening economy, he said. They cut back on buying consumer goods, a trend that crept all the way to chemical producers.

“It worked itself up the chain quite rapidly,” Adams said.

In past downturns, capacity and demand had remained in sync, Adams said. This time, however, capacity has outpaced demand, even though some new projects have been delayed.

Companies will likely shut down high-cost production in the US, western Europe and northeast Asia, Adams said.

In general, Adams expects producers to have little pricing power until demand recovers. Margins will remain weak, while capacity will continue to be ample.

However, forces are at work that will lead to a recovery, Adams said. Unemployment benefits are being extended, and foreclosures are being delayed. Governments have adopted recovery programmes worth billions.

The drop in fuel and construction costs also amount to a large tax cut that will help the economy as well, Adams said.

Moreover, such downturns provide companies with good opportunities expand into new regions or to buy or sell off businesses.

Paul Hodges studies key influencers shaping the chemical industry in Chemicals and the Economy
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By: Al Greenwood
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