Asian Chemical Connections

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?

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".

Back in the 1980s, before Japan's "Lost Decade" of stagnant growth, management gurus lined up to praise the country's collective spirit as the basis of a sustainable economic miracle.

Since then, of course, the West has been consistently espoused as the best.

And even the Japanese wish they could break free of their consensus shackles, according to this week's issue of The Economist -- hence, the huge popularity of management hero Kosaku Shima of conglomerate Hatsubishi Goya Holdings.

He thinks outside the box, acts decisely, is not scared of telling people what he thinks and has been successful even though he has always sat outside political factions within his company.

And in June, Shima (see picture above) truly broke the mould when he was promoted to shacho (president) of his company at the tender age of just 60 - very young by Japanese standards.

There is one slight problem: he is a manga or cartoon character.

"Shima is influential - business people want to be like him but can't," says Yuko Kawamoto, management professor at Waseda Uniiversity in Tokyo.

"Maybe there is hope for Japanese society. We want to change, but do not have the courage."

The grim reality for the average salaryman, according to The Economist, remains a life of drudgery and of stifled opinions because of the dreaded fear of causing a superior to lose face. As a result, bad decisions go unchallenged and become ingrained policy.

Japan's chemical companies have often broken the mould through innovative technologies - and were talkiing about and acting on energy efficiency long before the current oil and environmental crises.

Sumitomo Chemical is also about to start-up a huge petrochemical complex in Saudi Arabia - along with Saudi Aramco - and is talking about a major second wave of investment at the same site. This also involves breaking the mould as it's the first occasion that a Japanese chemicals company has invested on its own in a big overseas cracker project.

But the perception remains, fair or otherwise, that the chemicals industry could and should have undergone more restructuring.

Fair or unfair?

A consultant once told me a wonderful story - so wonderful I don't even care whether it's true or not - about how the monthly European benzene price in the 1950s was calculated based on the US price once the latest issue of Chemical Market Reporter had arrived in Rotterdam by boat.

Are we now wasting time and money on dealing with market volatility that's the result of how we gather and process information?

Nicholas Carr of The Atlantic.com argues that the Google age is making us think and behave differently.

The furious linking between one site and the next, the feeling of never knowing enough, of never being entirely up-to-date, might have turned us into what the playwright Richard Foreman calls "pancake people". In other words we have a broad range of knowledge thanks to all that surfing - but have an inability to read more than a couple of pages of text at any one time and to take a break from information-trawling long enough to consider what we have read. We have, as a result, lost our intellectual depth.

As our attention spans ever-shorten with the volume of information and information-solutions out there, are we making energy and chemical markets more volatile?

Are we no longer able to take a deep breath and stand back and contemplate what is really going on?

The financial players and the physical traders contribute to erratic price movements because they have an interest in volatility, but to what extent?

Could it be that the way we gather and process information plays a bigger role in erratic price movements than the speculators?

Fundamentals still play the biggest role. For example, oil supply is so stretched that the slightest disruption to production - or even only rumours of a disruption - can have a big effect on pricing.

But the speed with which information is flashed around the globe and how we react to that information might be increasing volatility in tight markets such as crude.

Quantifying the impact of the way the Internet is shaping the way pricing markets behave could be a job for the nueroeconomists who I wrote about earlier this month.

Perhaps the good old days were better, when CMR arrived by boat and a few wise old men with leather patches on their jackets puffed on their pipes and came up with a benzene price that was more stable and less damaging to both buyers and sellers. Or is this just rose-tinted and ill-informed nonsense?

James Burke (see picture above) has so far been proved wrong about the information technology revolution giving us the ability to be free, to create our own realities and to not be dictated to by governments, companies or other institutions.

In this clip from his wonderful series, Connections, he envisages such an era because knowledge will be freely available.

This is the great democratisation of knowledge written about by Chris Anderson in The Long Tail.

Sadly, the reverse has happened. We have become a slave to our machines - from our mobile phones, to our Blackberries to our PCs - and a slave to markets that we are nowhere close to predicting or controlling.

But give Mr Burke a break. His programme was broadcast in the 1970s, was way ahead of its time and perhaps so far ahead that one day his prophesies will come true.

For us lesser mortals further down the slippery career pole, it is easy to stare up with envy and contempt at the CEOs of our own companies and other companies.

Many us at times feel (myself included) that we could do a great deal better than our bosses.

I plan to develop a CEO board game with online and "hard copy" versions complete with chance cards such as "You get caught price-fixing at a major industry event. Do not pass Go and do not collect $2,000. Go straight to jail". The reference to Monopoly wasn't meant to be a dreadful pun.

We could then put our supposed superior skills into practice and prove whether we are really cut out for life at the top. And maybe if the game was accurate enough, it could be used to help assess real applicants for the top jobs. Watch this space for a prototype.

In the meantime, management consultants, as you well know, make a fortune from offering all kinds of advice to companies and their CEOs about how to make it big.

This is not always money well spent, according to Victor Newman - former chief learning officer at Pfizer - who is now what he calls an independent Knowledge Activist.

In his excellent video, 4 Faces of CEO, he talks of how one particular consultancy charged several million dollars for 3-4 months work, only to produce findings that he says could have been reached in a couple of hours through internal discussion.

I digress. This is not meant to be a dig at management consultants whose work I admire and whose salaries I envy almost as much as my CEO's.

It must be lonely and tough at the top, although a massive salary and the guarantee of a huge pay-off even if you turn out to be a load of rubbish are considerable compensations.

Newman's video is the opening to a CEO workshop where he tries to tackle the loneliness attached to making big decisions.

He highlights something we can all relate to no matter what our rank: the feeling of powerlessness to achieve what we want to achieve because we lack the necessary skills, resources or simply the time to get to the "ideal world" (in my case, a CEO board game developed within the next six months which becomes a huge commercial success enabling me to retire, save the world and ban caravans from the roads).

He has developed a diagnostic approach where business leaders identify where they want to get to and measure this against how far away they are from their objectives. Results of these evaluations are then shared in what he admits can be a painful exercise, followed with discussion on how each of the CEOs can get closer to their ideals.

Sounds great stuf not only for CEOs but for anybody who cares about progressing in their job.

And what's fascinating is the reason for the 4 Faces of a CEO title of his video.

These four faces are:

*Creators who don't care about money because they are "intrinsically motivated". In other words there is no point in just waving the big salary cheque, the luxury new car and country club membership at these people. The buzz they get is from new ideas and only new ideas. They find implementing ideas boring because they want to move on to the next thing

*Stabilisers who are loathed by the creators. These are the nerdy spreadsheet and process people who love setting up systems and would rather not take risks than risk failure

*Implementers. They can dress in jeans and bizzarely designed T-shirts - just like the creators - and share with these space cases thoughts about the intellectual beauty and complexity of this world. They are just as comfortable mixing with the stabilisers as they can be equally passionate about the latest delivery of paper clips.

*Newton says that only recently he identified a fourth category of business leader - navigators. These are the people who ask all the right questions of the three types of CEO listed above, can pull these types together, are great communicators both internally and externally and can see the big picture.

Other than having no interest in bizarre T-shirts (my sales manager more than compensates for me in this crucial aspect of innovation) I am too much of a creator. I hate loathe, detest and despise process (but begrudgingly now admit it's occassionally useful), which has got me into a lot of trouble over the years.

The ideal CEO might well be the navigator - the person with the great people skills, the zest for entrepeneurship, the huge capacity for detail and the ability to make processes work for people rather than the other way round.

And so - using these above categorie -, let's all indulge in the spectator sport of assessing how chemical CEOS fit in with Newman's categories.

Watch this space!

This article, by David Strahan, author of The Last Oil Shock, says that it would take three million coconuts to power one flight from London to Amsterdam on 100% biofuels.

Some of the comments posted at the end of this excellent article, first published in the New Scientists, agree with Strahan that we have reached "Peak Aviation" - no matter what the developments in second-generation biofuels.

The first generation nonsense of corn-based ethanol (as Andrew Liveris pointed in my post yesterday) and palm-based biodiesel have been thoroughly discredited.

But what the Strahan research also contends is that even the much-touted next wave of technologies will never realistically be able to 100% replace hydrocarbon-based fuels for aviation, transportation and power generation. The argument can also easily be extended to the chemicals industry, which, of course, is so tied into the production of transportation fuels.

Strahan supports this view with another startling calculation: an area bigger than China (10 million kilometres squared) would be needed to provide enough biomass to completely replace the world's current demand for fossil fuels for all forms of transportation.

Then you need to contemplate the likelihood that we have reached, or are very close to reaching, Peak Oil. The huge growth in crude demand from developing countries is pushing us much closer to Peak Oil, if it hasn't already arrived.

In The Last Oil Shock, Strahan quotes Dick Cheney in 2001 as characterising Republican energy policy thus: "Conservation may be a sign of personal virtue, but it cannot be the basis of sound energy policy."

But just a few years later, shortly after hurricanes Rita and Katrina had exposed the fine balance between crude supply, refinery capacity and demand, President Bush said: "We can all pitch in by being better conservers of energy."

Winston Churchill saved Britain, and the world, from the Nazis. He was, though, widely viewed as mad - even by many prominent Americans such as Joseph Kennedy - for sticking it out during the dark days of the Blitz.

The parellel here is that we need politicians and business leaders with the courage not just to react to temporary crises, as Bush did by telling people to conserve after the 2005 hurricanes.

We need the next president of the US to persuade the public to accept one-car ownership, greater use of public transport and recycling. A visionary leader has to emerge who will, in the long term, be willing to dismantle the whole structure of our current consumer economy through persuasion backed up by tough legislation.

The short election cycles in the US - when as soon as you are elected, virtually, you need to start worrying about the mid-terms and then your own re-election bid - might prevent any such leader emerging.

Equally, oil and chemical company CEOs don't last that long. Even the current generation of leaders might be well into comfortable retirement by the time our modern way of life collapses as energy runs out.

There's a marvellous line in Ian McEwan's great novel, Saturday, where the main character enjoys a shower after a game of squash and reflects that his could be last generation to enjoy luxuries such as limitless hot water.

Our supposed betters, the politicians and the business leaders, need to have the courage to tell us, to make us, consume less - and American has to take the lead (as it eventually did, albeit a little belatedly, in the Second World War). Only if America takes the lead on conversion, and on climate change, will the result of the world follow.

We need the CEO of a plastics company to, for example, to come out and say "please use less of our products, for the good of humanity". You can just imagine the reaction of his or her fellow Board members, however,

In this era of short attention spans fed by soundbites, spin, Google and YouTube - leading to erratic voters and equally erratic and fickle investors - visionaries of this nature are unlikely to emerge.

We are living on borrowed time

As delegates gather for this year's European Petrochemical Association meeting in the unreal world of Monaco (unreal for the 99.9 per cent recurring of us who don't own Ferraris), I thought it was worth summarising some of the issues discussed on this blog over the last few months.

We've dealt with:

*Oil-price volatility and the likelihood that high and volatile crude is here to stay. Crude at or around $100 a barrel seems to be a new long-term level with the strong possibility that geopolitical shocks could send costs much higher. Supply and demand balances remain tight and as soon as global economic growth recovers we will see much higher prices - meaning that the recovery could be nipped in the bud. Are we heading for a new economic climate where recoveries are constantly set back by rising energy costs? For every one barrel we are discovering, we are consuming three.

*The new credit environment that might well emerge from tougher banking regulations. No longer will it be possible for a truck driver from Iowa earning $20,000 a year to borrow at ridiculous multiples of his salary and at "teaser" interest rates. How these regulations will effect emerging markets his harder to read as Asian governments and consumers are in far better financial shape than those in the West. Many of the banks in Asia have been more prudent. But the events in the US will surely lower the appetite for risk globally - and there is no guarantee that the financial-rescue package will work. Ask your consultants or inhouse researchers you use whether their demand-growth predictions factor in the possiblility of lower growth because consumers no longer have access to as much credit.

*Innovation will be the key as the environment becomes a bigger and bigger issue for the chemicals industry. You need right technologies and the right kind of staff. As there is a possibility of a global carbon tax or carbon cap-and-trade system, do estimates of what this might cost need to be factored into feasibility studies? How feasible will it therefore be - given both high energy costs and the possibility of a price on emissions - to continue building plants long distances from major consumption markets?

*One of the big areas of innovation will be attempts to break the link between the refinery and petrochemical industries. BASF is claiming it could be as little as five years away from breakthroughs in catalyst technology that could change the industry forever, enabling highly competitive petchems to be produced from biogass, natural gas or coal.

And finally, other theme I haven't blogged on yet but will do are plant and energy efficiency. Some very interesting research projects are taking place at the National University of Singapore chemical engineering department into monitoring the exact output of plants in differennt climate conditions and a model that might enable producers to much more accurately predict changes in yields from switching feedstocks. Much more later...

Meanwhile, have a great meeting - and let's hope the economic conditions improve.

Globalisation is an attitude of mind as what might now be a slightly descredited economic doctrine.

Many companies are international but few - from talking to friends and contacts - are truly global in the sense that they recruit senior managers from all regions (not just the country in which their head office is located) and display a consistent bottom-up sensitivity to cultural differences.

I mean by this a recognition that business practices vary hugely country by country and culture by culture.

At every level of a company from administration support right up to the CEO, there should be an awareness that "one size fits all" approaches don't always work.

As the world economy implodes, addressing such issues for companies that have fallen behind in efforts to become truly global will be of far less immediate importance than survlval.

Survival might only be possible for those companies that already genuinely think and act globally.

I'll give you an example. One European-located trading company launched a major polymer additives sales push in Indonesia the week before Hari Raya Aidilfitri. Pouring money down the drain in this fashion is the last thing anyone can afford to do in the current climate.

Talking the walk is one thing which Lenova clearly does in this article from The Economist where the Chinese computer manufacturer makes all the right noises about being genuinely global.

Any Lenovo employees out there who would like to comment about how genuine these comments are?

And what about other companies?

We need great leaders in the current crisis.

Below is the kind of speech I'd like to hear from my CEO - delivered in person - if I worked for a chemicals company.

Everything that now follows is fiction and any resemblance to an industry leader, either living or dead, might sadly be purely coincidental:


"Things are really bad - there is no disguising it, and they will get a great deal worse. This is at least the worst global economic crisis since 1980-1982. Conditions are a lot worse than during the Asian financial crisis of 1997-98 when markets fairly quickly recovered.

"The financial security of hundreds of families depends on our company. Many of the main breadwinners of these families work for us.

"I have been through this myself - I was made redundant. It's not just the money that counts, it's the loss of self-esteem - because work for many of us goes to the core of how we define ourselves, of who we are, of what we mean to ourselves and others."

"I will do my very upmost to avoid having to tell anyone to leave for economic reasons. The only reason I will willingly let anyone go is if they make a careless mistake.

"We are all in this together, we must watch each others backs, support each other, encourage each other - and try not to make any mistakes.

"I would rather see volumes go down substantially than for us to acquire raw material from suppliers or sell product to customers in difficult financial positions.

"We need excellent market intelligence on the viability of all our suppliers and customers. How strong are their business models and credit positions? This knowledge needs to be constantly revised.

"I am not asking you to take any risks out of anxiety to achieve unrealistic sales targets. I will be revising those targets down, and will revise them and down even further if necessary - regardless of the initial impact on our share price.

"I believe that caution over business conditions will earn us the long-term support of our banks and our shareholders. I really don't care about my share options in the short term - all that matters is that we survive this together. And anyway my share options - and those of the fellow directors - will be worthless if we go bust.

"We cannot afford to make the mistakes of overbuying raw materials or over committing on sales because of our own credit position, the extreme energy-price volatility and the uncertainty over what is 'fundamental' demand'.

"Inventories have been run down because the industry was living in chemicals 'parallel universe', as Paul Hodges of International e-Chem so rightly pointed. Stocks were built-up earlier this year as crude prices soared on anticipation of further price rises up and down the product chains.

"This flew in the face of clear signals that the economic crisis was deepening. These signals included the collapse of Bear Stearns and the US government rescue of Freddie Mac and Fannie Mae. We were also guilty of this and I take the responsibility for following the herd.

"Once bitten twice shy and so everyone is as a result keeping stocks low. And as I've already mentioned, energy-price volatility and the uncertainty over demand is depressing buying and selling activity. Inventories are also being kept to a minimum due to the financial year-end.

"This means that I do not see our raw-material costs and finished-product prices moving up by anymore $20-30/tonne until at least the New Year and so there are no substantial gains to be made out there. But pricing hasn't necessarily hit the bottom and so declines could be much bigger than any temporary and slight increases - so the danger of taking a risk for the potential of a very small gain is the risk of a huge loss!

"But I am telling my sales team to be prepared for sharp upward price corrections at some point - possibly as early as January 2009. Demand is still out there, if only at very-much reduced levels, and once the end-user demand re-emerges, our prices could literally double overnight from very low levels.

"This creates an even greater risk for us and so the policy will remain the same: be cautious, don't take risks and if you miss targets and there is good justification for doing so, you will not be penalised. I would rather lose the odd upside deal when prices start rising and falling in large amounts than run the risk of a disastrous mistiming of raw-material buying and an increase in our operating rates.

"And finally, let's forget about the crisis for the rest of this evening. DINNER'S ON ME - LET'S GO AND GET DRUNK."

The grass will increasingly seem greener in the other field with, of course, little opportunity to hop over the fence because of downsizing and other vile euphamisms for wrecking the security of families needed to compensate for the naked and unregulated greed of the evil bankers.

So there will be time to dream of the perfect company (life can look very different on the inside of these compared with the public images that they portray, again of course).

One such dream employer could be Virgin Blue, if a recent interview with their chief executive officer, Brett Godfrey, in the Australian Financial Review magazine is anything to go by.

Unfortunately, I can't give you a free link to the article because it's behind a subscriber wall and I doubt very much whether my boss would sign-off the Aus$1,038 annual fee in the current financial circumstances.

But here are a few highlights from a hard copy of the magazine I found abandoned an a seat in Perth airport (yes, in these straitened times why pay for newspapers and magazines?)

"As a result of the JP Morgan furore (a highly critical and inaccurate analysts' report), Godfrey pencilled in his diary a series of 30 roadshows designed to reassure staff about the future. Over the past four months, with chief operations officer Andrew David in tow, he talked to 1600 of the company's 5000 staff in Sydney, Melbourne, Adelaide, Auckland and Christchurch."

And even better, continues the author of the article, Fiona Carruthers: "Employees are guaranteed a response to their bright ideas within seven days, unless he is travelling" (a note from an anonymous reader of my blog to his business-division director: "Dear....I sent you an email three years ago with some restructuring ideas and I am still waiting for an acknowledgement. Happy to see that some of those ideas have been successfully implemented by a colleague, though, who as you know has been subsequently promoted. But I'm not bitter about this." His redundancy cheque is in the post)

Godfrey, rather than laying new staff off, also sent them on a free holiday paid for by Virgin (although this was unpaid leave) when a strike at Boeing delayed a new service.

This is the stuff that dreams are made of.....

I was working with a chemicals consultant last month in India who gave me this priceless description of the true nature of a company:

"A company is a collection self-interested individuals who just occasionally -- and purely randomly - carry out actions that are for the benefit of the company as a whole".

Sounds like a comment, or a moan for those who actually care about who they work for, worth submitting to Lucy Kellaway, the corporate agony aunt, at the Financial Times.

In these straitened and grim times, the potential for office politics and such pontificating on the nature of the corporate world - as people sit around twiddling their thumbs and waiting for the bankruptcy administrator - must be huge.

Everyone will be looking for someone to blame. I blame Eric Cantona for leaving Leeds.

It's easy to take pot shots at the boss, and everyone of course feels they have been underpromoted and could do the job better themselves. Andrew Liveris is just the latest in a long line of CEOs to experience both envy - and at the moment perhaps a little pleasure at their failures. The gloating reaches extroardinary heights in the comments posted on this Wall Street Journal blog entry.

Sure, he should have seen the crisis coming and not agreed to pay such a high price for Rohm & Haas.

And sure, a man being paid such massive sums of money perhaps should have had sources inside Kuwait who would have forewarned him that the commodities merger was going to collapse.

Perhaps we should also expect him to secure world peace, reverse global warming and prevent Manchester Utd from ever winning a Premiership championship again.

As the potential swine flu pandemi threatens more lives - and even more damage to the global economy - it's time to watch American Idol re-runs.

It would be great if we could all collectively retire to some paradise island where Manchester Utd and Chelsea have never won a Premiership trophy, or any kind of trophy for that matter, for the last 20 years - and where the anxiety of making and losing money is replaced by a new Affluenza--free style way of thinking.

In the mean time, the free versions of Adam Lambert's stunning version of the Tears For Fears 1980s song, Mad World, have been removed from YouTube. But it is so worth paying for an iTunes download.

Meanwhile, here are the lyrics. Makes you think, eh?

All around me are familiar faces
Worn out places, worn out faces
Bright and early for their daily races
Going nowhere, going nowhere
And their tears are filling up their glasses
No expression, no expression
Hide my head I want to drown my sorrow
No tomorrow, no tomorrow
And I find it kind of funny
I find it kind of sad
The dreams in which I'm dying
Are the best I've ever had
I find it hard to tell you
'Cos I find it hard to take
When people run in circles
It's a very, very
Mad World
Children waiting for the day they feel good
Happy Birthday, Happy Birthday
Made to feel the way that every child should
Sit and listen, sit and listen
Went to school and I was very nervous
No one knew me, no one knew me
Hello teacher tell me what's my lesson
Look right through me, look right through me

"Nobody can see until the end of the month - never mind into the third quarter," commented an olefins trader recently.

"The reason is that very senior managers are too busy micro-managing everything, from getting involved in trying to track commodity chemical price direction to insisting on signing off every expenditure over a few hundred dollars.

"The problem with these senior guys when they track markets is that they are so out-of-the-loop - assuming that they have ever actually been in the loop - that they don't know what they are doing."

I heard of one big company where the CEO has even insisted on signing off travel authorisation to next week's APIC conference in South Korea.

In these days of tight credit and collapsed sales, it's understandable that much tighter control on spending is essential.

And during the boom years, can we all honestly say that every single trip we made was entirely commercially justified - and that we were always sufficiently foused on the bottom line to get maximum value out of each trip? Look back at your old expenses forms and count up the number of genuine "drinks with Mr Kim" entries.

It will be interesting to see how the lessons being learnt today will be remembered when the economy has fully recovered.

But from a HR perspective, a tough sign-off regime needs to be well-communicated.

So does the senior guys tracking shifts in chemicals pricing - whether competently or incompetently - otherwise the workers on the ground are likely to become demoralised.

They are unlikely to be able to leave in this current climate, but will surely perform far worse if they feel their opinions are being ignored for no good and well-explained reasons.

Off-the-record, of course, how does your company measure up?

And did you fiddle your expenses during the good times?

Picture: The Daily Mail

Ok, I lied - I am having trouble getting back into my petrochemicals bubble and so this post is not about polypropylene. Apologies to all those disappointed C3 H6 molecules out there.

I was sharing lunch with a highly demotivated Singapore-based chemicals industry employee recently and the great British 1970s sitcom, The Good Life, came to mind (see above picture for the full cast - don't you just love the clothes?).

In that sitcom, Tom Good, played by the actor Richard Briers, is meeting "Sir", the boss of the plastics processing company where he works as a draftsman. The company specialises in desiging and molding those little plastic toys you used to get (or might still get - I am not sure) free in your breakfast cereal.

"Sir" puts his arm around Tom, who he has noticed for the first time because he has been introduced by his friend Jerry, played by the late and great Paul Eddington, as "our top designer". Jerry is a monumental crawler and, as a result, is in an executive position.

Anyway, "Sir" says to Tom, or roughly words to this effect: "A new bubble has just come off the top of our think tank and I want you to take charge of this project - plastic hippopotamuses (or was it giraffes? Couldn't find on Google). Are you excited? Do you think you are the man for the job?". He is speaking in one of those annoyingly enthusiastic voices you may have heard in meetings and wished "if only I could have the presence of mind to fake it that well".

Tom, is of course, supposed to show enthusiasm in order to crawl up the slippery corporate ladder, but instead bursts out laughing, goes home, quits his job, and decides to become self-sufficient by growing all his own food - and keeping lifestock - in his suburban back garden.

To return to my lunch with the unhappy chemicals-industry employee, he had been ground down by having to bite his tongue in so many long and dull meetings that when his boss asked for ideas for a new corporate slogan, he replied: "How about 'The Relentless Pursuit of Mediocrity?' ".

He lives in a condo with a window box as a back garden and so growing fruit and vegetables for a new career is not option.

Anonymous contributions would be gratefully received for comments you would have liked to have made in company meetings, but felt unable to do so. This is your chance to let off some steam.

"Bob, I think I we should give this up as I can't get a wireless connection and I couldn't be bothered to talk to anyone."
Source of Picture: Faculty.SMU.Edu

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......and the effect on the quality of data and analysis is one of my big concerns - particularly at a time like this when petrochemical markets are becoming harder to fathom (many thanks to Andrew Keen and his excellent book, The Cult Of The Amateur).

The overwhelming volume of information on the Internet has led to the emergence of a new breed of journalist/company researcher/data gatherer.

No longer is it necessary to speak to people on the telephone and/or to interview them face-to-face.

Instead it is possible for the clever writer/researcher to compile an article from an Internet search. You can cobble together a convincing story (on the surface at least) by lifting data, analysis - and even quotes - without checking the accuracy for yourself.

The benefit of direct contact with multiple sources is that with experience and over time you get to work out who is reliable and who isn't from your assessment of character and motives etc; in other words, intuition.

There is no substitute for getting out of your comfy chair and travelling through the Chinese hinterland in search of the Holy Grail - real inventory levels (that's unless, of course, you are frightened of someone finding out that you are fraud with very little sincere knowledge of and interest in what you do).

Yahoo Messenger etc have further eroded the need for direct contact - again, taking away the human interaction which I believe is essential to get good quality information.

Now we have a generation of journalists/researchers who are spoilt - and I am sure overwhelmed also - by all the free information out there. Because you've never had to get off your proverbial rear end to tell a convincing story to your boss, you quite probably don't even know how to.

And more recently we have seen the emergence of an army of amateur and totally untrained citizen journalists, researchers and "experts" who can witness the riots in Burma from the comfort of their armchairs and nobody will be able to tell the difference (in other words, they make it up).

I was talking to a corporate relations officer of a certain International Oil Company the other week. He told me how one of his senior executives was so disgusted by the banality of the questions being asked that he gave the interviewer his business card back and said, "I think you should recycle this."

I once suggested to someone that while the Internet was of course essential (who would want to go back to parchment after William Caxton came along?), an experiment should be tried with young journalists/researchers/analysts etc.

I suggested that we should switch off the Internet, give them only a telephone, a travel budget and a list of contacts, along with some hard-copy resources, and assess whether they were able to assemble original and accurate information.

We could then offer training for those who fell below the mark. He accused me of being an "Old Fart".

But I am not sure how much of this was motivated by the fear of telling the Emperor he really had no clothes as opposed to a genuine belief that I was wrong.

What would would the great man have thought?

Source of picture: Newham Council, the UK

Four of the things my dear late father taught me were:

*Never vote for the British Conservative Party

*Keep believing in the common good of humanity in the face of all the evidence to the contrary

I plan to teach my son the same.

These words came back to me when a friend described the excitement of his colleagues when their company was unionised.

"It's great, isn't it? Think of the shopping benefits."

Take it way, Billy.

Go find the young men never to fight again
Bring up the banners from the days gone by
Sweet moderation
Heart of this nation
Desert us not, we are
Between the wars."

Never look on the bright side of life...

Source of picture: thescratchingshed.com

By John Richardson - fresh back from a long break in Europe (more on this later).

"If you keep predicting a catastrophe, John, you will eventually be proved right," a senior executive from a major Asian petrochemicals producer told me in mid-2007.

At that time it seemed as if the industry would be undone by a huge increase in supply which would be way in excess of demand.

This correspondent got the timing of a downturn roughly right - sometime in H2 2008 - but was completely wrong about the cause. As we all know it was the collapse of Lehman Bros and the subsequent global economic crisis.

But I didn't see the 2009 recovery coming and keep being amazed by the resilience of growth in Asia.

I come from a part of the world - the county of Yorkshire in the UK - where people have a reputation for being gloomy, stubborn, cussed and taciturn. This is probably to do with the awful weather and food (with the exception of outstanding Indian food), and so perhaps it's not surprising that I have often taken the negative view.

In contrast, the senior executive quoted above has always been optimistic and to date his projections for stellar petrochemicals demand growth in Asia have been proved correct.

He was originally a salesman, as were or are many of my other contacts who share similar sunny dispositions, and so their persistent optimism is hardly surprising; have you ever met a miserable, nay-saying sales executive who was also successful?

The perhaps laboured point I am trying to make here is that how you view the world is crucial in interpreting the myriad, complex signals that can point to either a rosy view of the economic future - or one that would make a Yorkshire man who enjoys wallowing in misery truly happy.

And let's take this a step further: If the dominant view is optimistic right now, when there are as many reasons to be positive as negative, perhaps we will get out of this current euro-inspired crisis unscathed.

But if the overriding opinion becomes the opposite, this will amplify the flight from risk and the short-selling in oil, stock and other markets to create a self-fulfilling prophesy of economic implosion.

I am hardly in a position to give advice on positive thinking, given my background. I will leave this to my ever-sunny American friends.

What I can suggest, though, is that you MUST NOT under any circumstances visit Yorkshire - other than to watch the greatest soccer team on earth, Leeds Utd.

By John Richardson

VERY occasionally the blog deviates from its close coverage of petrochemical markets to focus on broader business issues. Today is one such occasion after a discussion with a manager of a major Asian chemicals trading operation.

The manager is convinced that the good times are behind us, to refer back to the petrochemical markets environment very briefly, as a result of weaker Chinese demand growth, the substantial threat that rising energy costs pose to the global economy. He also warned of seemingly positive US macroeconomic indicators that he said had created a "false dawn".

Maybe on all the above he is just trying to present a bearish picture as he has gone short, not just in chemicals trade but also in his myriad other investments which the blog freely admit that it does not understand.

But what is admirable about this manager are the occasional pep talks he gives to his team.

In his latest pep talk said: "These will be difficult times after an excellent 2010.

"You have my promise that I will give you all the support you need on the detail and delivery of your work in what's going to be a challenging 2011. If things go wrong I will take the blame and if things go well I will not take all the credit with our directors.

"If you feel at any time that I am not communicating clearly and effectively let me know. My door is always open.

"You will not be blamed for not taking big risks this year. Let's play it cautious. We are in this together."

What a boss, eh? Anybody else like that out there? Please let the blog know.

Source of picture: Indiaagrifarms

By John Richardson

Saudi Arabia continues to pursue its vision of adding social value to its hydrocarbon reserves by creating jobs. This involves going further downstream from basic petrochemicals.

"The Ministry of Petroleum has said, 'we want an end to polymer tourism' - i.e. plastic pellets leaving the Kingdom and returning as finished goods," said an industry observer.

"As a result, the $20bn Sadara petrochemicals project has a $2bn downstream Sadara Value Park, where there will be plastic processing plants.

"The Saudi government has made it quite clear that approval for plain vanilla petrochemicals projects, such as commodity grades of polyethylene (PE) and mono-ethylene glycol (MEG), will no longer ben given.

"The first 25 years of petrochemicals strategy were about making cash out of gas and the next 25 years will be about adding value downstream."

"If you visit one of these proposed plastic parks, right now you see nothing more than sand, but there is a real will to make this work.

"The cynicism is still there, but there is a growing determination to make this work, and, I think, more commitment from investors.

"It is also about getting the right incentives to make this work - for example, low-cost financing, free land, free electricity and tax incentives.

"This is a multi-pronged approach by the Saudi government. It recognises that it is not just about incentives for investors - it is also about changing the entire education system to encourage people to work behind hot and sweaty processing plants. There can only be so many 'knowledge-based workers' sitting nice, air-conditioned offices."

But with a population of only 28 million, Saudi Arabia will still face the same problem that has confronted basic petrochemicals, if it ends up creating a big plastic processing industry: The need for substantial volumes of exports.

The problem for any exporter is that it can no longer depend on China to soak up imports of basic raw materials, and components of finished goods, that are then re-exported to the West.

Thus, it will be about very careful market segmentation. Companies selling to China, and emerging markets in general, will need to focus on the megatrends that will drive growth in the future. For example, PE resin and plastic pipes for better irrigation systems.

By John Richardson

SOUTH Korea serves as another example of how demographics are reshaping Asian economic prospects.

"By 2018, 14% of its population will be over 65, making it officially an 'aged society.' That is six years sooner than Japan and more than a century before France, according to the Samsung Economic Research Institute," writes Reuters.

The above slide places South Korea in the context of the rest of the G20. By 2030, its total number of retirees is forecast to be approaching 40% of the population. Only Spain, Italy, Germany, and, of course, Japan are expected to have older populations.

The extraordinary increase in South Korea's retirees compared with 1970 illustrates how, as countries become rich, people stop having enough babies. China's problem is that it is ageing before it becomes rich.

South Korea's demographics will have severe implications for its healthy state finances, says Reuters in the same article 

"A report released by the Ministry of Strategy and Finance in July (2011) warned the national debt would jump to 138% of gross domestic product (GDP) in 2050 as pension and health insurance expenditures skyrocket, from around 34% last year," the wire service continues.

The labour intensive South Korean economic model is under threat from labour shortages and poor productivity.

Productivity is at risk of getting worse as the workforce ages and, as a result, slips further behind in IT and other modern manufacturing skills.

Training will have to be improved, retirement ages raised and women will need to be more readily accepted in the South Korean workplace.

This emphasises the key role that governments need to play in addressing demographic challenges, as we argue in chapter 10 of our e-book, Boom, Gloom & The New Normal.

The good news for South Korea is that has a tremendous record of economic transformation.

"In 1948, per capita income in South Korea was US$86, on par with Sudan's.'(South) Korea can never attain a high standard of living,' wrote a US military official," the blog said in a 2003 tribute to the country's transformation.

This far-sighted US official added that there were virtually no South Koreans with the technical knowledge and skills to take advantage of the country's natural resources.

In 2011, South Korea's per capita GDP was $31,220, according to the International Monetary Fund (IMF), just behind the European Union and Israel and ahead of countries such as Spain, Italy and New Zealand.

South Korea is, of course, the home of many world-beating brands following its successful escape from the "middle-income trap".

It also seems to have at least recognised that it faces a demographic problem.

We worry that in the West, policymakers have yet to even recognise their demographic crises.

The great news behind rising labour costs: Shan Dalin, pictured with his family, is a crane operator from Southwest China's Guizhou province who has worked in eastern Zhejiang province for 10 years. In 2012, Shan's monthly income rose to 2,800 yuan ($449) from lower than 2,000 yuan in 2008. [Photo/Xinhua]

By John Richardson

The shortage of workers in one of the manufacturing heartlands of China - Guangdong province - is expected to increase from 400,000 before the Chinese New Year (CNY) to 1 million-1.2 million once the holidays are over, according to the Guangdong Human Resources and Social Security Department, quoted in this China Daily article.

This is as we suspected and flagged up a couple of weeks ago.

Post-CNY labour shortages seem likely to affect other coastal export-focused manufacturing provinces.

Part of the reason is simply delays in workers returning from their homes in the hinterland to eastern and southern China due to the huge logistics challenge of moving so many people in such a short period of time. For instance, more than 10 million migrant workers, or 61% of the total in Guangdong, have left the province, says the China Daily.

Longer-term reasons for the expected squeeze in labour supply include the high cost of living in the coastal provinces and the success of government efforts to raise living standards in inland China.

Thus, increasing numbers of migrant workers, as has been the case over the last few years, are likely to decide to remain at home when the New Year is over.

Labour shortages, which are also the result of the beginning of the end of China's demographic dividend, place the workers who do return to their jobs in a very strong position.

If they don't get what they want, there will be more industrial disputes after the New Year, which would, obviously, also restrict the ability of manufacturers to fulfil orders.

And so the manufacturer who are, of course, the buyers of chemicals and polymers, will need to further raise wages and improve working conditions in an attempt to secure enough workers.

This is likely to further squeeze the margins of the small and medium-sized enterprises (SMEs), which, as we discussed earlier this week, have reportedly fallen to 1-3% compared with 8-12% before the Global Financial Crisis. Since December, rising fuel and chemicals and polymer costs have exerted a great deal of pressure on China's SMEs.

There might well be a post-New Year bounce in chemicals and polymer markets on the inevitable uptick in industrial production.

Placing this bounce in the right context is going to be difficult.

Will underlying demand be stronger than before the New Year or weaker, and how will the SMEs cope with increasing cost pressures and, quite possibly, reduced access to credit as the Chinese government deals with renewed inflationary pressures?

Our concerns for the second quarter are growing.

 Source of picture: http://whyfiles.org/ 

By John Richardson

MY colleague Nigel Davis has written an excellent Insight article which highlights how some chemicals companies are seeking to respond to changing patterns.

As we have discussed before, Bayer Material Science is adapting its portfolio of products in response to the megatrends - demographics, energy conservation, climate change and the challenges of providing enough food and water to sustain emerging-markets growth.

"There are many ways you can grow in chemicals but achieving anything like the growth rates of the past has become increasingly difficult," writes Nigel.

"In the short term {and in the long term, we think], chemical companies face the prospect of slower demand from China, lacklustre growth in the US and extreme weakness in Europe."

He uses the example of BASF and how the Germany-headquartered chemicals giant is working with Harvard University, MIT (the Massachusetts Institute of Technology) and the University of Massachusetts (UMass) Amherst.

The aim is to jointly develop new materials for the automotive, building and construction, and energy industries.

The research collaboration will involve chemists, physicists, biologists and engineers with know-how in different industries, BASF says. The trick will be to turn academic research into technically feasible products and processes.

"Topics already identified include micro- and nano-structured polymers with new properties, as well as biomimetic materials that emulate nature," BASF said.

"The scientists are working on lightweight construction materials for wind turbines and automotive construction and on new colour effects for cosmetic applications," it added.

"We need the creative spirit of the widest possible range of sciences to develop solutions to meet the needs of a growing world population for clean drinking water, secure energy supply and improved quality of life," president of BASF's Advanced Materials and Systems Research, Christian Fischer, said.

Such creative spirits will only prosper in companies that have top-line executives who both understand that the "rising tide lifts all boats" growth model of the past is over for good, and crucially, are prepared to act on that understanding.

Close collaboration with countries and local companies, as growth models evolve, is essential if companies are to adapt to the New Normal - as, of course, is the willingness to invest in R&D that will not always reap immediate share-market and quarterly profits-boosting results.

Carefully nurtured relationships with customers will also be a key ingredient for success.

"I have watched my customers grow for more than 10 years now, and as a result, have been able to grow with them," said a source with a global polyolefins producer.

"Many of my customers in China have gone from being commodity converters of standard-grade polyethylene (PE) to highly sophisticated producers of value-added film with, for example, high moisture protection."

If you haven't done the groundwork already, it is going be extremely difficult to play catch-up.

BASF, for instance, is already collaborating with 600 research institutions.

There is no more time left to lose.

By John Richardson

XI Jinping, who formally became China's president last week during the National People's Congress meeting, faces enormous challenges.

Life is, for example, pretty grim for hundreds of millions of people in China.

Many have lost out on the country's "economic miracle" because a hugely disproportionate share of the country's wealth has ended up in the hands of a poor, often corrupt, elite at the top of Chinese society.

Thus, supported by demographics that have swung in their favour, factory workers are no longer prepared to accept poor wages and bad working conditions. They are now much more willing to down tools.

As for the middle class, life, whilst economically a lot better, is blighted by food and air pollution (and, of course, this applies to the poor as well!).

Just imagine bringing up your kids in a world where you worry every day that they might be breathing in noxious air and eating contaminated food. OK, your apartment might have tripled in value since the early 2000s, but what's the point of money when you cannot guarantee the safety of your children?

As countries get richer it always happens that the quality of life becomes as important as material wealth.

What is different in China is the size of its middle class, or more accurately the middle income proportion of its population, and the presence of the Internet. The Internet enables public dissent to spread far more quickly than in the past.

Maybe the biggest of all of China's problems is the end of the demographic dividend, which we have already referred to above.

The slide at the top of this post neatly summarises the economically dangerous consequences of China's one-child policy. As you can see, China falls into the same category as only one other country, Russia, in being both poor and old at the same time.

The great news is that Xi shows every sign of recognising all the difficulties. We wish him, and his colleagues, every success.

China has done it before - i.e. the economic transformation achieved by Deng Xiaoping, which lifted hundreds of millions of people out of poverty. This was a colossal achievement.

Let's hope it can do it again.

Chart compiled by the China Real Time Report blog. 

By John Richardson

NOBODY should be surprised about what is happening in China's petrochemicals markets, as the signs have been there for many months that economic rebalancing would have to accelerate.

This could be marvellous news in the long term for domestic consumption growth, but it is grim news right now for China's lower-value small and medium-sized enterprises (SMEs) - the main drivers of petrochemicals consumption.

As we warned might happen, they are finding access to credit much harder following government efforts to rein-in credit growth, according to several chemicals traders we spoke to yesterday.

And, as the Wall Street Journal's China Real Time Report blog points out, wage costs are once again on the increase.

"After a pause in 2012, minimum wages have returned to rapid increases," writes the blog.

"Export hotspots Zhejiang and Guangdong hiked the minimum wage by 12% and 19% respectively in 2013.

"With the central government's inequality plan promising to lift minimum wages to 40% of the average, further steep increases can be expected in the years ahead.

"A survey of more than 300 factories in the Pearl River Delta by Stephen Green, China economist at Standard Chartered, found that wages for blue collar workers are set to rise 9.2% in 2013, up from a 7.6% increase in 2012.

"The survey also found that additional pressure is coming from stricter enforcement of social insurance contributions - which can add substantially to the wage bill - and higher demands from workers' representatives."

The problem is that unless higher wage are met by increased productivity, inflationary pressure will increase, making an increase in interest rates much more likely.

"A rise in interest rates would be a major blow to the market," a Singapore-based polyolefins trader told the blog last week.

Workers have demographics on their side and so they might well be in no rush to heed calls for better productivity.

By John Richardson

CHINA has to improve innovation if it is to avoid the middle-income trap.

Some people assume that success is a given because of China's great achievement of lifting hundreds of millions of people out of absolute poverty over the last two decades.

But rapid industrialisation and infrastructure spending, which were the methods of achieving the above, are perfectly suited to a heavily-controlled political system. Resources can be easily mobilised on a huge scale when the state controls both finance (the state-owned banks), and, to quote Marx, "the means of production" (the state-owned enterprises).

Now the challenge is to foster the right degree of creativity essential for innovation within what some people warn are the "confines" of the political system.

One of Xi Jinping's tasks is to ensure that the system is flexible enough to allow small, start-up companies to spring from nowhere and become producers of world-beating brands, while  ensuring that reforms don't undermine the political system.

South Korea became a democracy before successfully escaping the middle-income trap, as we discussed in chapter 10 or our e-book, Boom, Gloom & The New Normal.

Bill Dodson, author of China Fast Forward: The Technologies, Green Industries and Innovations Driving The Mainland's Future*, provides a bleak analysis of China's current innovation environment.

"As Thomas Kuhn wrote in his seminal study of the work of scientists, 'The Structure of Scientific Revolutions', most often discoveries are resisted by peers who have vested interests, yet eventually 'the community of scientists adapts - typically in nonviolent ways - as the discovery becomes a fact that expands on previous understanding," he wrote.

"The scientific method is supposed to weed out wrong or misleading results and researchers to contribute to a base of standing knowledge upon which others may continue to build. The court systems in a civil society function similarly, with judgments passed based on a body of evidence that is indisputable in its objectivity and certainty.

"Both science and society in China are based on patronage, though. Patrons are typically political appointees with ties to the Chinese Communist Party. They are made department heads, school directors and research presidents.

"Often, political appointees have little or no experience in the fields they are charged to manage. Subsequently, patrons themselves dole out positions of responsibility to scientists, funding for projects, even living quarters for the families of researchers. Consequently, researchers learn not to 'bite the hand that feeds' if one wants to advance his or her career."

This "network of patronage" means that China is ill-equipped to develop the innovation necessary to deal with its huge environmental problems, said Dodson. 

China's economy has become increasingly dominated by the state-owned enterprises, which, according to Dodson, is bad news for innovation.

"The larger the enterprise and more closely aligned with national industrial policy, the fewer degrees of freedom of research & development interests and commercial viability the entity has," he added,

Yigong Shi and Yi Rao, deans of Life Sciences at Tsinghua and Peking Universities said in an editorial in Sciences Magazine: "It is an open secret that doing good research is not as important as schmoozing with powerful bureaucrats and their favourite experts. China's current research culture wastes resources, corrupts the spirit, and stymies innovation."

The Chinese themselves, according to a survey by the design agency, frog, think it will take some time for China to catch-up on innovation.

"Companies like Apple, Microsoft, Google and Samsung were regarded as more innovative than local businesses such as HTC, Huawei, Tencent and ZTE," wrote the marketing news and analysis service, Warc, in its report on the frog study.

"A third of respondents thought it would take more than ten years for Chinese companies to become as innovative as those in the West, while a further 25% felt it would take between six and ten years."

Is it, though, just a question of time?

The deadline of 3 July is closing in fast for entries to the 10th ICIS Innovation Awards, designed to reward innovation, environmental advances and sustainability in the global chemical industry. If you want a chance to win extensive coverage in ICIS Chemical Business and receive industry-wide recognition for your hard-won innovations as they enter the marketplace, now is the time to act.

Full details and an online entry form can be accessed at www.icis.com/awards, which also contains details of all winners from the past nine years.

How well does your innovation match up?

This year we are pleased that Roland Berger Strategy Consulting has stepped up to take the overall sponsorship of the ICIS Innovation Awards. It will award to prize to the overall winner this year, as well as sponsoring the Best Product Innovation category.

We are also delighted to welcome back US Chemicals as a category sponsor and to welcome two new category sponsors: Versalis and Nexeo Solutions.