VIDEO: Survive by planning for uncertainty in 2011

04 January 2011 15:45  [Source: ICIS news]

LONDON (ICIS news)--The global chemical industry needs to take bold steps to plan for an uncertain macro-economic outlook for 2011 and beyond, a leading consultant says in a White Paper published by ICIS on Tuesday.

Key drivers of growth for the chemical sector such as China and the US face huge challenges in maintaining momentum this year, according to Paul Hodges, chairman of UK-based International eChem.

Hodges, in his 'Budgeting for Uncertainty' paper, believes government action in China and political changes in the US could threaten the fragile global economic recovery.

“We’re seeing the most uncertainty I’ve ever seen in 30 years in the industry," he said.

"There’s a lot going on in China and we really don’t know what government policy will be about there. Are they going to pull back on inflation or keep the boom going? That has been the mainstay of chemical demand for much of the last 18 months.

“In the US we have a Republican controlled Congress battling with the Democrats so who knows what will happen there. And in Europe we have governments approaching austerity.”

Hodges believes that as we enter a “new normal” of sustained lower economic growth in mature economies, CEOs should implement a scenario planning strategy which will enable their companies to thrive even if the recovery falters.

'Budgeting for Uncertainty' describes three scenarios - upside, base, and downside - in which global chemical industry capacity utilisation heads from the current 85% to a full recovery, partial recovery, or decline.

“It’s a proven technique for companies to have a base case; an upside case (what would you do if supply constraints continue and the markets improve?); an also a downside case (what would you do if a lot of the demand-side case has been built on a lot of hot air and on inventory?).”

“If you ask me, honestly, I would plan for the downside and if it’s better, that’s great," Hodges said. "We’ve had 18 months during the worst recession for 50 years in which we’ve turned in record profits. That seems a bit unlikely and I worry about what could happen next.”

CEOs need to ask senior management teams to help with scenario planning, Hodges beleives. “The only way to get through uncertain times like this is by pooling knowledge. We all know that teams have a better record than individuals.”

Click here to download the White Paper from the ICIS site.

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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