The perils of forecasting

By Malini Hariharan

This is a tough time for those who are in the business of forecasting. Predictions of petrochemical margins hitting the bottom in 2009 have so far not materialised and volumes from new plants are being digested quite easily.

“What’s happening? It is hard to understand the [market] situation; until when can you be optimistic,” questioned a rather confused equity analyst who has been telling his clients petrochemical earnings would fall this year.

“All the analysts have turned out to be wrong [in their forecasts] and their opinions were based on what consultants said. It is becoming really difficult to forecast petrochemical demand and supply,” he added.

While operating problems and the time taken to stabilise operations at new plants have kept supply in check, demand has also been good in China and other Asian markets. Producers have had major problems offloading volumes and even a slowdown in Chinese demand for the last few weeks has not prompted panic selling.

LG Chem Petrochemical Earnings
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Source: Company

His third quarter operating profit forecast for the South Korean majors (LG Chem, Honam Petrochemical and Hanwha Chemical) is that it will be flat quarter-on-quarter. “At best we are looking at slightly lower than Q2 as July was a big weak. It was only in late August that we saw strong prices and September was nearly flat. But the Q3 estimate is higher than expected earlier,” he said.

And, more importantly, 2010 earnings are likely to be higher than 2009.

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