06 May 2011 13:44 [Source: ICIS news]
LONDON (ICIS)--There is a danger that overinvestment in petrochemical expansions in ?xml:namespace>
Large amounts of capacity additions, coupled with more moderate economic growth in
The current favourable conditions for the chemical industry globally are making companies undertake major expansion decisions without considering the possibility that those decisions will contribute to a down cycle, he said.
“We are more and more concerned at BASF about an increasing risk of overbuilding once again. We currently see a risk that people are becoming too ambitious, enthusiastic and optimistic. And that could lead us to where we have already been in this industry.”
He added: “The cycles are not self-created by magic; it’s the industry which creates them. Overcapacity will be bad news for all of us, as it will lead to margin erosion and then it will come down to who has what cost position. When you’re in that position, that’s when the fun stops.”
He said BASF would be comfortable because its verbund philosophy – the interlinking of production plants – gives it a competitive edge, adding: “We are very optimistic and positive about Asia, and this word of warning does not imply a negative outlook for BASF in
“But industry has a responsibility to look at cycles as man-made: we create them, they are not thunderstorms. I feel optimistic that people are able to learn from the past.”
Penkuhn said a variety of announcements on petrochemical investments have been made in
He said the Chinese government’s attempts to control inflation by tightening monetary policy are necessary but will have a negative impact on manufacturing growth. “They cannot have inflation above 5% and they need to cool their economy,” he said.
But this policy is leading to a lot of speculative manufacturing, as companies rush to produce goods before obtaining credit become more difficult.
“We feel that underlying GDP growth in
Penkuhn said he believes that over the next decade the chemical industry in
He dismissed talk of a “supercycle” for chemicals.
“At the risk of being blunt, I don’t believe in the ‘supercycle’ story at all. It discounts environmental and demographic risks, also political risks such as the
Penkuhn warned that long-term demographic trends in
“They only have 20-25 years to go until they have a real aging problem like the Germans do. All their political stability is based on growth and young people wanting to make a living. When they become old, what’s next?”
BASF released its first-quarter financial results on Friday, posting net income of €2.41bn ($3.49bn), up from €1.03bn in the same period in 2010.
($1 = €0.69)
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