InterviewNo prospect of recovery for global petchems in 2010

22 January 2010 14:32  [Source: ICIS news]

By Will Beacham

No prospect of recovery for petchems in 2010LONDON (ICIS news)--There may be a small amount of growth, but no proper recovery in the global chemical industry in 2010 due to a lack of real demand and volatility in China, a leading consultant claimed late on Thursday.

Paul Hodges, chairman of UK-based Internationa eChem, told ICIS news in a video interview that there was no prospect of recovery to pre-downturn levels in any chemical market globally.

He said: “We don’t see in any market - apart from possibly China - any real increase in demand. Take some real numbers: for example the housing market in the states was doing 2-2.2m housing starts a year and is now down to 600,000. Look at autos – this was doing 15-17m sales a year and is now down to 10m.

“Do we seriously think we’ll return to those levels again this year? No – and that is what a recovery would mean. I think we’ve bottomed and I certainly hope we’re going to see a bit of growth but I don’t see us returning to where we were before.”

Hodges said many in the financial community were confusing the destocking/restocking cycle with real recovery.

During 2010 Europe and the US would have to learn to live with increased volatility in chemicals markets as cheaper ethane-based ethylene from the Middle East hits co-product values. “We’ll get some volatility in markets here which we’ll have to learn to live with. This is new and we’ll have to feel our way through.

“I think there’s been a lot of confusion about the Middle East. For some reason people thought the new capacity would come onstream at the end of 2008 and in 2009 so they’ve been very positive recently, saying it’s come on line and it hasn’t been a problem.

"That’s never been our forecast – we always said that capacity would start ramping up now plus the Chinese capacities coming on and that’s really what we still see,” he added.

Hodges claimed an economic and financial bubble was about to burst in China, meaning the chemical industry could not rely on that market as an engine of growth in the downturn.

“I’m very worried about China. A year ago they were faced with a total collapse of their exports which were 37% of their GDP (Gross Domestic Product). After the Lunar New Year they’d lost 25m jobs. What could they do?

“So they stimulated the economy. They lent out an incredible volume of money. The Chinese economy is about the size of Germany’s – about $4,000bn (€2,830bn) and they lent our over $1,000bn. A lot of this went into speculation and now they’re trying to rein it in. The bubble is starting to burst.”

There have been grounds for optimism, longer term, for the global chemical industry, said Hodges, as moves towards lower carbon economies would increase demand for polymers and innovative products.

“We’re looking at a complete change in the way we make things and run our society. We might move from 17m auto sales in the US to 10-12m but they’ll have much greater fuel economy. Better fuel economy means much less steel and glass but more polymers. Insulation in housing and construction is another growth market.”

“We’ve just got to get through the next couple of years before we see these benefits coming through. You’ve got to invest now to position yourself for the real recovery when it comes,” Hodges added.

($1 = €0.71)

Read Paul Hodges’ Chemicals and the Economy Blog
To discuss issues facing the chemical industry visit ICIS connect

By: Will Beacham
+44 20 8652 3214

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