07 October 2012 12:08 [Source: ICIS news]
By Nigel Davis
BUDAPEST (ICIS)--The approaching downturn will be just as bad for the petrochemical industry as previous slumps, as companies battle the twin evils of cost volatility and uncertain demand, a leading industry consultant said on Sunday.
Investors are speculating on oil and gold rather than currencies as central banks try to push unwanted liquidity into the markets, International eChem chairman Paul Hodges said on the sidelines of the 46th European Petrochemical Association (EPCA) meeting.
That speculation has driven up the price of oil while the value of the US dollar and the euro has dropped.
The unintended consequences of quantitative easing in the US and Europe has been to push the oil price up to 5% of global GDP compared with a more normal 2%. “And every time we’ve done that a major recession follows,” Hodges said.
Chemicals value chains amplify oil price movements, he added. In 2011 there was panic over the cost of inventories in the fourth quarter and chemical prices dropped sharply.
Quantitative easing helped push the oil price back up and chemical prices exaggerated this volatility. The swing in prices was reflected in movements in apparent demand.
“If you understand what’s happening you’re better prepared for it,” Hodges, who writes a blog for ICIS, said. “Companies really need to look beyond this and find new areas to grow.”
Hodges suggested that chemical producers try to better understand how customer demand is changing with broad demographic trends. The over-55 age group in the developed economies present new product opportunities, he suggested. Low-wage earners in emerging markets are another potential target.
“The great companies of today did not survive by hiding in a corner,” he said.
The annual EPCA meeting runs from 6-10 October.
Read Paul Hodges' Chemicals and the Economy blog
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