InterviewVIDEO: Low operating rates may worsen by year-end - Hodges

23 October 2012 16:50  [Source: ICIS news]

LONDON (ICIS)--Low fourth-quarter global ethylene operating rates of around 80% may worsen by the end of the year as an “L”-shaped recovery takes shape, a leading consultant said on Tuesday.

High oil prices combined with ineffectual central-bank interventions and long-term demographic trends mean the global economy is unlikely to see a sustained recovery in the short-to-medium term, according to Paul Hodges, chairman of UK-based International eChem.

He said the outlook now is far worse than a year ago: “A year ago we could still be hopeful that the oil price was going to fall and that would encourage consumption. We could also be hopeful that central bank interventions would lead to a more sustainable kind of recovery."

"Sadly a year on, oil is at very high levels, the highest ever for the last two years, and stimulus packages simply haven’t achieved their objectives.”

Stalling global economic growth, high oil prices and misguided central bank intervention mean the chemical industry can now look forward to an “L”-shaped recovery.

“Let’s just say that things are going to be pretty flat. The fourth quarter and first quarter of 2013 are looking pretty flat and that doesn’t give much grounds for optimism. Ethylene rates worldwide are around the 80% level and, to be honest, I think we’ll be lucky to hold onto those until the end of the year.”

Hodges believes that population demographics drive economic growth, and the aging population in the west means lower demand there. Meanwhile, emerging-region populations will consume more, but not enough to compensate.

“Older people mostly have the stuff they need and if they want to replace a sofa they can delay a year or two, unlike a young family buying things for the first time.  

If central banks focus on that then everything will be a lot better,” he said.

Chemical companies can still emerge as winners, despite the ongoing economic malaise, if they focus on creating products which will appeal to older western consumers and the nascent emerging markets.

“There are two fantastic opportunities in the midst of this crisis. The first is the growing number of over 55s – almost no-one is making products for them. Secondly, look at the emerging markets where billions of people are moving out of poverty: again almost no-one is making products and services to serve these people.”

He pointed out that Japanese car-maker Nissan is re-launching the Datsun brand as a $3,000 (€2,310) car.

“Every chemical company selling to the car industry ought to get on a plane to Tokyo and talk to them because that is going to be a raging success.”

He added: “If people [in the chemical industry] wait for the central banks then I think they’ll be waiting until they go bankrupt.”

($1 = €0.77)

By: Will Beacham
+44 20 8652 3214

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