I will wait for this Lego truck to hit S$100

Legotruck.jpg

Yes, that’s my target for the truck above, which is actually for 4-11 year olds and my son is only 22 months – but what the hell, don’t we all deserve a second or, in my case probably a tenth or perpetual, childhood? And I am trying to teach him the value of recycling (the above picture is of a recycling truck) – even more bad news for the conventional chemicals industry.

The truck was S$249 (Singapore dollars) two weeks ago, has fallen to S$199 and surely has much further to go as the deflationary spiral begins to bite. My target is S$100, provided, of course, it hits this level before Santa sets off with his reindeer and his elves etc (poor old reindeer – less carrots this year, and I imagine Santa will be laying off some of his little helpers and moving those he retains to flexible short-term contracts with less healthcare and other benefits. Do the elves have a union, though? Not sure…answers, please).

But the serious point is that the deflationary vicious spiral – delayed purchases and higher savings rates leading to worsening corporate results, more unemployment and further delayed purchases – may have only just begun.

I remember reading an article in The Economist a few months ago which concluded that the US would not suffer a Japan-style decade-long slump because it had inflation. Not now.

Down every product chain, in the case of lego from crude oil to the plastic (acrylonitrile butadiene styrene) to the finished goods, inventory has been manufactured using high- cost raw materials. Remember when crude was above US$100/bbl? It seems almost a distant memory.

So this means everyone – from the retailer in Singapore selling my boy’s truck right up to the ABS producer and the cracker, aromatics and refinery operators – will have to endure lots of hair cuts in this first circle of the deflationay spiral.

Volker Trautz of LyondellBasell is right to say that destocking of this nature is a big cause of weak demand at the moment – and that the true nature of underlying demand might not emerge until Q1 next year (see below for interview).

But by the time the first quarter comes around, we could be into the second loop of a deflationary spiral that might push is into something as bad as the Great Depression, or a global version of Japan’s long and painful economic paralysis.

What’s your strategy to survive this?

18 November 2008 17:45 [Source: ICIS news]

HOUSTON (ICIS news)–Petrochemical customers have cut purchases as they expect prices to continue falling – a trend that has masked the true level of demand during the global economic slowdown, the CEO of LyondellBasell said on Tuesday.

Starting in the third quarter, customers reduced purchases on the expectations that prices would fall in upcoming weeks, said Volker Trautz, LyondellBasell CEO, during a conference call.

Such destocking accelerated in the fourth quarter, Trautz said.

At the same time, demand has dropped because of the global economic slowdown, he said. “The economy has clearly slowed.”

LyondellBasell will not have a clear picture of underlying demand until the first quarter, he said.

As it is, LyondellBasell has idled an olefins plant and reduced operating rates as a result of the slowdown, Trautz said. The company has also shut down polymer plants.

The company has reduced its 2009 capital expenditures programme to $800m (€632m), the minimum deemed necessary to meet safety and environmental standards, Trautz said. LyondellBasell has also adopted a cost-cutting programme.

In the upcoming months, LyondellBasell may consider selling off noncore assets, such as real estate, the company said.

In all, the company should generate cash in the fourth quarter, which should allow it to reduce its net debt, Trautz said.

In other news, LyondellBasell expects to remain in compliance with its covenants in the fourth quarter and in 2009, the company said.

($1 = €0.79)

By: Al Greenwood
+1 713 525 2653

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