By John Richardson
DEVELOPED market plastics demand is currently 15 per cent below 2007 levels, despite a modest recovery in 2010, because of two successive years of double-digit declines in 2008 and 2009, according to a new HSBC report.
Some estimates suggest that developed-market demand will return to pre-crisis levels by 2015, adds HSBC. However, the bank believes that even this rather pessimistic forecast is unlikely to be realised because of weak overall economic growth.
“While the near-term outlook for supply growth remains favourable – we forecast a CAGR of 2.9 per cent over the 2011-15 period – demand growth would need to exceed supply by 150-200 basis points each year for the existing oversupply to be absorbed and a meaningful tightening of operating rates to occur,” adds the bank.
“This already challenging task is complicated by a macro outlook that suggests demand contraction in the developed world in 2012 and a prolonged period of slower growth thereafter.”
The bank therefore says that the ‘Supercycle’ theory, popular with investors late last year, is a load of nonsense. Hear, hear. But, of course, a theory such as this doesn’t have to be true. All that matters is that enough people have to believe in such an idea for long enough in order for somebody to make money.
And the bank provides a very interesting piece of historical context when it adds: “The commodity chemical industry has been (frequently) built – even overbuilt – with certain growth expectations in mind,” says the report
“Over the past 20 years, the net increase in the capacity base in excess of demand growth has totalled over 13m tonnes – highlighting the fact that, despite two decades of fairly robust macro conditions, excess supply has not been absorbed by demand growth.”
But the opportunities for the true innovators, those who don’t merely concentrate on cost efficiency and operating rate discipline, are nothing short of fantastic. More next week…..