Asian Chemical Connections

First of all, apologies to readers for my complete neglect of this blog over the last six weeks. I can only plead overwork and being too stunned by the collapse of the global economy to think about the blogosphere.

I promise regular posts from now on, provided I am not once again dazzled by the headlights of the advancing global-calamity juggernaut.

Now to the actual first post since early June: The recent fall in crude prices provides some hope for hard-pressed liquids cracker operators confronting the squeeze of higher feedstock costs and weaker demand.

But the pricing decline is partly a reflection of just how bad demand has become - surpassing all estimates of reductions in fuel consumption in both Asia and the West. It's not just energy efficiency triggered by high prices that has driven crude down, but also the credit crisis.

Another reason why crude has fallen was the decision by the US to meet with Iran.

Fundamentally, crude supply remains constrained and it would only take an Israeli attack Iran (a strong possiblity over the next six months) for oil to reach $200 a barrel.

Commodity chemical companies need a different approach to customer management, new methods to deal with with highly volatile raw material costs and fresh ways of keeping costs down. Otherwise those without feedstock advantages are in danger of going bust.

ICIS training plans to run hands-on courses, complete with exercises on customer management, negotiation skills and price assessment with our partner - International eChem.

....that's the case - in the Middle East case because of advantaged feedstock and in China's case because it will be strategic.

In previous downturns, far more capacity was western, or other Asian, and liquids based and so rate cuts brought markets more quickly into balance.

The graphs below from ICIS Plants & Projects data show that while only 14.8% of existing capacites comprises the M-E and China, this will rise to 62.3% of the new capacities being brought onstream in 2008-12.

This will leave M-E and China accounting for around 27% of total gobal ethylene capacity.

ME gas crackers + China.ppt.....

This article from The New Scientist suggests we might have to develop a whole new way of asssesing what drives all commodity markets.

Intuitively, everyone knows that the herd instinct matters. But to measure this mathematically, or statistically, seems a mountainous but fascinating challenge.

At least it will keep the a few academics off the streets for a few years and journalists busy writing articles.

The momentum of opinion might be about to shift in favour of the belief that this year's crude-oil price surge is more to do with speculation than fundamentals.

No less than 15 bills targeting speculators are circulating around Washington at the moment.

This same article details an investigation of allegations that Optiver, the oil trader, manipulated the market. In the public's perception "manipulators" seem to be confused with the legitimate role of speculators and companies who need to hedge their raw-material costs.

The danger is that politicians will latch on to this idea and introduce harmful legislation in order to win votes.

Does the objective external truth - if there ever such a thing and you believe in following what others say rather than making your own internal reality - really matter in such a debate? Or is it all a question of perception. Me pretentious? No, come on....

Referring to my post yesterday, how much does perception shape both short and long term price movements? Should we abandon equilibrium economics for new sentiment-based methods of quantifying how markets behave?

Listen out for the stampede of sheep in Prada shoes as the analysts and journalists jump on the "speculation" bandwagon. Standing out from the crowd can make you feel al little lonely.

Let's assume that supply is hugely challenged as this excellent blog constantly argues.

If prices fall to - or there is a significant fear that they might fall to - $70-80 a barrel, interest in exploiting hard-to-get at reserves such as the Alberta Oil Sands could diminish. Prices need to be at a minimum of these levels to justify costly investment in oil and tar sands and deep-sea reserves. Exploiting marginal reserves is essential for a secure energy future.

The end-result could be that we are storing up an even bigger supply crisis for ourselves in years to come - by believing that the speculators are to blame and thus driving prices down.

Companies might then be forced to draw back from the heavy expenditure and innovation necessary to get at difficult sources of oil and gas.

Baaaaaaaaa.....

Perfect subject if you've got the post-weekend blues....

A very irate and tired and emotional chemicals trader was moaning last week about the imposition of a new knowledge-management system by his company.

"Our bosses never listen to us and they assume that if they come with a new software solution that we have had no role in developing we will just do as we are told and use it. The system just doesn't work - it's totally inappropriate for our business. It makes people less likely to share rather than more likely. It takes time away from our core job roles, is inefficient and is slow but nobody can say anything because it was the top boss's idea who sold it the board. His career is riding on it."

Let me know if your boss listens to you - in confidence, of course, in this world of precarious job security.

And have a listen to this short video from David Gurteen that sums this up beautifully. It's the first one in a series of six (all worth listening to) and entitled "How do you make people share?"

David spent 30 years working high tech industries and is now an independent knowledge educator and coach.

My dear old mother used to often say "what's the world coming to?" as if life was constantly getting worse.

But for South Korean workers - and for workers everywhere in Asia - expectations of employers have long been unreasonable. Tied into this is loyalty, "face", pride and ridiculously long and often unproductive hours that drive workers to breakdown - and sadly suicide.

Click her for a story about an innovative solution from Samsung where employees have signed up in droves (they have overbooked) for courses where they enact their own funerals. The idea is to make stressed workers think through what death means and all the problems they would leave behind if they took their own lives.

Also click here for an extraordinary gallery of pictures from the FT.

All very laudable, but shouldn't employers everywhere kick over the cultural traces, take the pressure off profit growth and reduce the constant pressure on workers to run ever-harder just to stand still? Is it up to ethical shareholders to also take a haircut and demand better working conditions?

Take a leaf from Google where the freedom to relax, to enjoy and to think - the result of a relaxed workplace environment where people are not obliged to sit around in suits terrified to speak out of turn - has led to one of the world's most creative and successful companies.

This could lead to higher rather than lower earnings and not just in the trendy IT sector where relaxed work culture is the norm. As climate challenges multiply, the chemicals industry will need to be just as innovative to prosper - a theme I'll be touching on constantly over the coming months.

But can you magine any Asian CEO using a slide - such as the one in the picture above from the Google offices in Zurich - to descend to a meeting?

Or is there a new guard of younger Asian executives ready to take over who regard employee welfare, creativity and profitability as interconnected?

The expression "tthis really gets my goat" is in common usage in Northern England, where I hail from. Indeed, despite spending 11 years in Singapore, few people other than my wife (who is Scottish and has an even worse accent and some even stranger expressions) can understand a word I say.

Anyway, the point is that the US, to use a more familiar expression, loves to tell the world to "Do as I say, not do as I do", especially when it comes to free-market economics as this article from Meghnad Desai from the London School of Economics so eloquently highlights.

This is the Asian century - and this doesn't get my goat at all.

Great that my entry yesterday Work can be the death of you produced a response.

But I think the commentator missed the point.

Working long hours is not an issue for staff who are properly managed and motivated. The "presenteeism" of some work cultures, though, is surely a major source of concern for the welfare of employees.

Sure the "business furniture" of free workplace food, slides and dressing down needs to be supported by a management approach that goes deeper.

I would suggest that at least in the case of Google creativity is not just a surface PR image.

A conducive workplace environment can also be an indicator of a deeper respect for employees.Otherwise, we mightaswell go back to the "executive canteen".

Regular readers of my blog might have seen last week's post linking through to the New Scientist article about research into new ways of assessing how markets behave. Prompted by the irrationally steep falls triggered by the credit crisis (or maybe they were reverse - the previous high valuations were based on irrationality, leading to a return to 'fair value'), the research looks at herd behaviour. Researchers are trying to quantify the influence of rumours over privately held views and verified and publicly available information.

Now The Eonomist has written about neuroeconomics - the emerging science of using magnetic resonance imaging (MRI) scans to study how emotions affect behaviour.

Companies in years to come might be able to install hidden MRI devices that can map the feelings - and therefore the likely buying or selling positions - of suppliers, customers and competitors.

Imagine waking up in the morning, ringing up your ethylene customer and saying "My offer price is $1,150 FOB Korea only to be told "I know already and I know this is irrational and not based on your real cost position. Did you have an argument with your wife last night?