By John Richardson
THE big difference in the mood at the ground level of certain parts of the petrochemicals industry compared with that of company board members and investors was thrown into further stark relief earlier this week.
As we discussed on Tuesday, the big polyolefins sector of this industry continues to struggle in China. Growth forecasts for 2011 have proved way off-the-mark as it becomes more and more apparent that demand was, in effect, brought forward by China's huge economic stimulus package. Bringing demand forward amounted to speculation in lots of stuff - from polyethylene (PE) down to finished goods - which is sitting in warehouses unsold, dragging down fresh consumption.
Contrast this with a Credit Suisse client note released on Monday, based on presentations at the bank's Global Chemical and Agricultural Science Conference in New York last week.
"Demand is resilient across most markets; order books and activity levels are resilient, except in construction and southern Europe," wrote Credit Suisse.
Most companies were quietly confident that current demand levels would be sustained throughout the second half of this year - and customer inventories were reported to be lower than in 2008/2009, continued the bank.
My colleague Nigel Davis took this Credit Suisse note as evidence that companies focused on innovation are in a much better place than those which are in pure commodities.
"Time was when the innovation had more to do with process technology (hence costs) than product technology," he wrote in this Insight article.
"The world has turned, however, and today a constant flow of product improvements, made alongside the process technology changes, are the true drivers of differentiated corporate growth."
These companies seem well-attuned to the megatrends that will shape global chemicals growth over the next few decades, which we discuss in our e-book Boom, Gloom & the New Normal. The trends include ageing populations in the West, climate change everywhere and water shortages and food security in emerging markets.
And maybe also the companies are well down the track in tailoring their product portfolios to meet the biggest change in China's economic direction in at least a generation.
The central government, as part of its 12th Five-Year-Plan (2011-2015), is focusing on energy efficiency, renewable technologies and environmental protection as it appears to have recognised that the quality of growth is as important as the quantity.
Whether these policies will be effectively implemented is the big question that we will examine in Chapter 6 of our book, which is released in early October. But evidence of Beijing's resolve has already emerged in the auto market, where calls for the re-instatement of the old subsidy system have so far been ignored.
Further reasons for the dramatic difference in mood between those at ground level - and board members of and investors in these differentiated companies - might include:
1.) The fact that sales and marketing executives of pure commodity companies were probably set unrealistic targets in late 2010, as it wasn't fully understood that demand had been brought forward in China. One of these executives told us last week how he was receiving only one or two calls a day with orders from converters and traders. Last year, his phone virtually never stopped ringing
2.) Traders who made a lot of money during the great China credit binge in 2008-2010 are now either struggling or in bankruptcy
BUT even predominantly speciality chemical companies such as BASF, BMS etc cannot escape the fact that all chemical businesses depend on one very important factor: DEMAND.
Specialities might not feel the pain as immediately as commodities from a renewed global recession, but will eventually have to suffer.
And so the blog is still a bit confused by the confidence of companies, expressed during the Credit Suisse conference in New York last week.
Wouldn't it have been more prudent to fully own-up to the scale of the economic risks ahead?