EPCA ’10: Recovery is supply-driven - International eChem

03 October 2010 16:46  [Source: ICIS news]

BUDAPEST (ICIS)--The chemical industry’s strong recovery this year has been driven by a lack of supply rather than sound demand fundamentals, a consultant said on Sunday.

Speaking on the sidelines of the 44th annual meeting of the European Petrochemical Association (EPCA) in Budapest, Hungary, Paul Hodges, chairman of International eChem, said that a lack of available feedstocks has limited supply, driving up prices and improving profitability this year.

Hodges, who also writes a blog for ICIS, claimed that the industry in Europe has experienced a strong recovery even though operating rates only reached an average of 82% during the first half of the year. Greater-than-normal oil refinery cutbacks have reduced the supply of feedstocks for the chemical industry, he said.

The rallying oil price, Hodges said, has more to do with financial markets than a fundamental improvement in demand.

“The Federal Reserve says it is getting worried about the US economy: it produced a very glum report a couple of weeks ago and has announced more quantitative easing. What does that mean financially? It means the dollar is going to go down. If that happens, people want to buy a hard asset such as crude.”

He added: “It’s got nothing to do with the supply of crude – we’ve got almost the highest stocks we’ve ever seen.”

Scenario planning will be vital for chemical companies hoping to prepare well for the uncertainties of 2011, he said.

“A phrase from Warren Buffet comes to mind, which says that over the course of a lifetime you may see extraordinary or even bizarre things happening in financial markets. We’ve got to accept that we’re living through one of those times.”

He added: “We’re back to scenario planning. We’ve got to ask ourselves what we can do to insulate ourselves from what is happening. You’ve got to be able to optimise when things are going well and mitigate when things aren’t going so well. Planning is the key.”

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By: Will Beacham
+44 20 8652 3214

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