InterviewEarly 2010 to offer ‘sweet spot’ for chem projects

20 November 2009 20:24  [Source: ICIS news]

By Ben DuBose

Peter Oosterveer and Michael PearsHOUSTON (ICIS news)--Chemical companies that have delayed new projects due to the financial crisis should look to the first half of 2010 as an opportunity to catch the market at its bottom, executives with US engineering and construction firm Fluor said on Friday.

Prices for raw materials such as copper, steel and other manufacturing components have come down 10-20% from the market’s 2008 peak, but should begin heading upward in earnest by 2011, the company said.

“We’ve done quite a bit of analysis, and our prediction is that come the first half of 2010, that will be the time for customers to buy equipment and materials - the sweet spot, if you will,” said Michael Pears, senior vice president of energy and chemicals for Fluor.

“Raw materials are down, manufacturing costs will be down, job space will be available and clients will be hungry,” he added.

Fluor provides engineering, procurement and construction (EPC) services for chemical and other industrial companies.

Companies should begin their front-end engineering and design (FEED) processes soon so that they can be ready to place orders for equipment in materials in the first half of next year, Pears said.

Because the construction market continues to lag the broader global economic recovery, customers should still be able to receive favourable construction costs when they get to that point in the process in late 2010, he said.

Peter Oosterveer, group president for the energy and chemicals segment, pointed to ExxonMobil as an example of a producer that had the foresight to take advantage of the economic downturn.

“They see this as an opportunity to position themselves and take advantage of the market,” Oosterveer said.

According to Oosterveer, the extent of the cost decline varies on a regional basis. For example, in the Middle East, the company has about 50,000 workers at one of its projects - representing a “tremendous pull” on the market and thus keeping prices less variable.

“Even though work has come down, we’re still plenty busy,” Oosterveer said.

While prices still came down in the Middle East, there are already indications of some raw material costs climbing back up, Pears said.

On a global basis, the chemical market is unlikely to truly revive before 2011, Oosterveer said. But the bottom appears to have been reached, making 2010 somewhat of a “transition year” in which companies should prepare themselves for the next upward cycle, he said.

“It will take about a year before [companies] are in position to build, so if you really want to take advantage of the dip in prices, you should start now,” Oosterveer said.

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