12 March 2012 00:00 [Source: ICB]
© Rex Features/Gareth JJ Burgess
Are you taking a long-term view, or going around in circles?
Supply also improved in petrochemicals, as expected new capacity finally made its way into the market after start-up delays.
The big question is whether the final quarter slowdown will set the pace for 2012, or whether there will be a fairly rapid rebound, as downstream users replenish stocks run down at year end. But the outlook is not clear, and with China taking steps to curb growth and inflation and with Europe struggling to contain its debt problems and seemingly slow to rekindle growth, there is a significant question mark over the strength of any pickup.
The US on the other hand does seem to be enjoying an improving economy and a boost to chemical investment and activity from low-priced ethane feedstocks. Latin America also continues to do relatively well.
SEEKING DEMAND GROWTH
US producer Dow Chemical noted in its fourth-quarter 2011 results statement that it is still looking for demand growth this year, but driven largely by inventory restocking. Few large companies can expect more in such an uncertain macro-economic environment.
Dow CEO Andrew Liveris talked of "considerable weakness" in western Europe in the fourth quarter, which was offset by still strong growth in China and wider Asia. "We do not anticipate material improvements in market conditions for the first quarter of the year, but do project economic recovery will gain momentum as we move through the second quarter and the remainder of the year," Liveris said.
"Regardless, we will continue to intervene to ensure we deliver against our short- and long-term targets." That means the firm will stick to its cost control and price discipline targets. Most companies in early 2012 are expected to act similarly.
European major INEOS also reported the trading environment in the fourth quarter of 2011 was challenging. "Businesses such as nitriles and phenol were directly impacted by the government imposed fiscal restraint in China which led to a decline in Asian demand and declining product prices," it said.
"Problems in the eurozone countries affected olefins and polymers in Europe, with many buyers seeking to reduce stockholdings, leading to weakening demand and reduced operating rates. Trading conditions were better in North America and margins there remained above mid-cycle.
INEOS said it has continued to focus on cash management and liquidity: hardly surprising in such a difficult and uncertain trading environment.
But it is not just the short-term outlook that is exercising minds on company boards. As James Black, chemicals head at Germany-based J&M Management Consulting, points out: "The chemical industry continues to face many macro-challenges, not least the increasing effects of globalization, as markets move from West to East."
He also sees speed of innovation as a major issue for established Western players, as they seek to rebalance their efforts away from tweaks and incremental advances towards large-scale breakthrough innovation.
On top of all this there are the continuing issues surrounding economic stability, a potential downturn caused by the sovereign debt crisis and waning general market confidence, as well as the fact that producers are still experiencing highly volatile and rising raw material and energy costs, compounded by the physical difficulty in securing supplies of some materials.
So how, he asks, are companies addressing these problems and what levers do they have at their disposal to improve their performance and the robustness and flexibility of their end-to-end supply chains? Are they focusing yet again on short-term action plans, as they learned to do during the sharp demand-led downturn in late 2008 and 2009? Or managing to retain a strategic outlook for the longer term?
Such questions will be addressed in this year's ICIS/J&M Annual Readership Survey, which will explore companies' responses to the current climate, through an online readership survey of ICIS subscribers and via a parallel series of one-to-one interviews with key industry executives to explore some of the trends and issues in more detail.
"It will be interesting to see what companies have learned and leveraged from sector dynamics over the previous three to five years," says Black. "Are there any contrasts or convergence between companies with commodity or specialty characteristics?"
J&M Management Consulting has partnered with ICIS to conduct a joint chemical industry readership survey for the past five years. Its 320 consultants combine management consulting, IT competence and chemical industry experience to design and effectively implement pragmatic solutions with clients that deliver tangible results. J&M is independently recognized as a leader in supply chain consulting.
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