Chemicals & The Economy

The Pearl River Delta is the original heart of China's industrialisation process. The blog first visited 20 years ago, as China slowly opened up to the West, and was amazed to discover that cities such as Guangdong were already as large as Hong Kong. Today, along with Shanghai, the region is the manufacturing capital of the world.

Now, however, The Guardian reports that the area is being badly hit by the global recession. 67000 small firms collapsed in H1, with toy and textile firms badly hit, as raw material costs escalated. Then in Q3, foreign-owned firms were hit by tighter credit markets. More recently, there has been "a sharp drop in US and European consumer demand".

The blog noted in December that it was unlikely China could 'decouple' from the West, with 80% of the Delta's GDP export-related. Those Asian chemical companies who rely on exports to China's manufacturers, are already suffering. And with China's government focused on supporting the rural economy, the blog worries that China's chemical demand, outside agrochemicals, may take a long time to recover its recent growth rate.

The blog has been thinking about last week's leaked report from the International Energy Agency (IEA). This said that the world needs "to invest $360bn each year until 2030 to replace falling oil production and increase supply". The IEA based this sum on a new analysis of 500 oilfields, which showed the current depletion rate was 9.1% every year, and 6.4% even if companies invested in more wells at each field.

This means that the world is currently losing nearly 8mbd each year of current oil supply due to depletion, more than double the previous 4% assumption. Even the 6.4% rate means 5.5mbd of new oil needs to be found each year, just to keep supply stable. And, of course, demand has been growing in recent years, due to industrialisation in emerging economies in Asia, the Middle East and Latin America. This demand growth means more oil has to be found.

And there is another aspect to the issue. This is that OPEC countries, who produce 44% of the world's oil, are facing major problems from the global recession. According to Bloomberg, Dubai's government-controlled companies owe "at least $47bn, more than Dubai's GDP". The money has been borrowed on the back of a huge property boom, and the expectation that tourist numbers will double to 15 million by 2015. Other oil producers, including the 2nd largest, Russia, are in similar difficulties.

This would suggest that oil prices need to rise, on a permanent basis, in order to encourage exploration and production. Equally, oil producers need higher prices if they are to balance their budgets, and avoid social unrest. But at the moment, with destocking underway around the world, prices are instead under downward pressure. OPEC has already had to announce cuts of 1.5mbd, and may be forced to announce more, just to try and stabilise prices at today's $60/bbl.

Oil prices will probably remain under pressure whilst the current period of destocking continues. But after that, they could easily spike quite sharply, even if underlying demand is actually quite slow, as OPEC is likely to be cautious about raising production once more. And longer-term, today's relatively tight supply/demand balances may well continue. Ongoing price volatility, and a global recession, will make it difficult to fund the large investments that the IEA says are needed.

The US Federal Reserve used just to manage monetary policy for the 12 'districts' of the USA. But now, it is going global.
First, it opened unlimited "swap lines" with other G7 countries through the European Central Bank, the Bank of England and the Bank of Japan, as well as the Swiss National Bank. Then, last week, it did the same for Brazil, Mexico, New Zealand, Singapore and S Korea.

Those countries within the new "swap lines" can borrow from the USA in their own currencies - so the Fed takes the exchange rate risk. This is also something that has never happened before, and highlights just how seriously the Fed regards current problems in the world financial system. As Bloomberg comments, "5 years from now, Fed Chairman Ben Bernanke will be regarded either as brilliant or reckless for so directly reaching around the globe".

October's US auto sales were as bad as expected. But even so, GM still managed a surprise. Once the undisputed market leader, its sales were truly awful, falling 45% versus October last year, as shown in the chart above. A sign of GM's own shock is that its inventory ballooned to 141 days, whilst Chrysler's was at 113 days. In mitigation, Mark LaNeve, a GM VP, described October as "probably the worst industry sales month in the post-World War 2 era". Chemical companies are also feeling real pain, as industry sales suffer along with the auto companies.

BMW, the world's largest luxury car manufacturer and owner of Rolls Royce motors, today abandoned its August forecast of record auto sales and a 4% operating margin for 2008.

CEO, Norbert Reithofer, was in downbeat mood, saying that "the financial crisis is by no means behind us yet, particularly its impact on the real economy in 2009''. BMW is cutting production, and increasing its provisions from €695m to €1.04bn, as bad debts are rising and resale values for leased vehicles are falling.

Rolls Royce prices are usually very robust in the used car market, only falling during severe recessions. Their slide suggests Reithofer's concern about the outlook for 2009 is well-founded.

ICIS is reporting today that Shell sold open spec naphtha to Cargill at $267 CFR Japan, for the first half of January. Normally the naphtha: crude ratio is around 9.5: 1. But with January Brent at $66/bbl, the ratio is now just 4:1. The blog can safely say we have never seen it this low before. And naphtha is not the only oil product facing a glut, with Petromatrix commenting that US refinery margins are currently "under extreme pressure".

With Reuters reporting that Saudi Arabia is cutting oil exports by 900,000 bpd, Cargill's purchase is logical. But the fact that a well-informed player such as Shell was selling, makes the blog slightly wary. If refiners are forced to cut runs for December, then it would be hard for OPEC to cut its own production quickly enough to compensate. In that case, a $20 - $30/bbl range for crude, albeit temporarily, would not be impossible.

TOTAL have adopted a very clear strategy for surviving the downturn. The results statement today particularly highlights their success in strengthening their balance sheet. Net debt to equity now stands at just 15.4%, whilst they are "maintaining a high-level of liquidity and divesting non-strategic holdings".

TOTAL also see a need "in the short-term" to adjust oil "supply to lower levels of demand". But they "reaffirm their view of higher oil prices in the medium to long term, supported by a tight supply-demand balance".

Their view is supported by a report in today's China Daily. This features calls from leading analysts to increase China's storage from its current 30 days of supply, and "take advantage of today's low prices to build more oil reserves".

Sen. Barack Obama duly won a landslide victory in yesterday's US Presidential election, but will not take office until 20 January.

I suggested last month in ICB, that "this delay, at such a critical moment, is not good news for chemical companies or for their customers".

The blog therefore congratulates the new President, and expresses its hope that he will find a way to move forward on tackling the key economic issues. 11 weeks would be a long time for a policy vacuum to exist on these at the heart of Washington DC.

Earlier this week, the blog noted GM's dire October performance, with its US sales down 45% on last year, following the ending of its price promotions. Now, Roger Altman, the former US Treasury official who is advising GM on its loan application, has told Bloomberg "time is very short" to avoid its collapse.

Normally it would take the US Energy Dept over a year to draw up rules for such a loan. This time, they expect to complete in 30 days. And today, a meeting with Speaker Nancy Pelosi is taking place, to try and finalise the application. This urgency tells its own story about GM's financial state. GM's suppliers in the US chemical industry will be hoping it comes through this crisis successfully.

UK interest rates have just been cut by 1.5% to 3%. They were last at this level in 1955.

The Bank of England had been very concerned about inflation, currently at 5.2%, compared to a target of 2%. But the Bank now sees no danger from inflation in the future. Instead, it is warning that there is "a substantial risk of undershooting the inflation target".

The Bank also noted that "since mid-September, the global banking system has experienced its most serious disruption for almost a century". It added that "there has been a very marked deterioration in the outlook for economic activity at home and abroad". And it expects that "the availability of credit to households and businesses is likely to remain restricted for some time".

Earlier, the European Central Bank had also recognised that inflation was no longer a major concern, when it cut rates by 0.5% to 3.25%.

Last month, the blog titled its 2009 Outlook, Budgeting for Survival. This week, the Financial Times has begun a series on developing recession survival strategy. Its key tips are:

• Manage your cash. Don't spend money unnecessarily.
• Keep a strong balance sheet. Have as little debt as possible.
• Price your products/services keenly. Be imaginative.
• Keep faith in the future. Eventually, downturns lead to an upturn.

"Our normal customers have no orders to place with us, and our credit department won't let us sell to others who might want to buy". The blog was given this plain-spoken assessment of current chemical market conditions by one of the majors yesterday.

Coincidentally, US Fed Governor Kevin Warsh was making one of his rare speeches, analysing today's "unprecedented levels of volatility and dramatic financial market and economic distress". He concluded that "we are witnessing a fundamental reassessment of the value of virtually every asset everywhere in the world".

Warsh is one of the few central bankers who tried to warn of coming problems. He pointed out in April that "liquidity should not be mistaken for capital". Now, he sees companies and investors being forced to reassess "seemingly benign risks - credit, liquidity, counterparty, and even sovereign risks". As a result, credit controllers are refusing to allow sales to be made unless they are sure the invoice can be paid.

The G-20 was created in 1999, after the financial crises that had hit emerging countries from 1997 onwards. It includes the G7 group of major industrial companies, plus the main emerging economies, including the BRIC countries (Brazil, Russia, India, China). Its ministerial meeting this weekend became a preparatory session for its first-ever Heads of State meeting in Washington on Saturday, with the aim of developing "concrete policy outcomes".

Encouragingly, China used the occasion to announce a $586bn stimulus package, to be spent by the end of 2010, focusing on rural development and infrastructure programmes. As Zhou Xiaochuan, governor of the People's Bank of China, noted "if China can maintain domestic demand, its helpful for global stability". The BRIC countries also announced measures to promote trade flows between themselves, in an effort to compensate for lost exports to the West.

The background to these efforts is a forecast from the International Monetary Fund that world growth in 2009 will be at a recession level of 2.2%, and less than half the 5% seen last year. The IMF also forecasts that "output in the advanced economies (US, Europe, Japan) will contract" next year. This would be the "first annual contraction since 1945", and be "broadly comparable" to the major recessions of 1975 and 1982.

2 months ago the blog raised 5 key questions about the $700bn US bailout. Yesterday's news about additional government funding for insurance giant AIG confirms its concerns.

Originally, the US Treasury had insisted it would only support "healthy" firms. Now, this fiction has been abandoned. After AIG announced its 4th straight quarterly loss ($24.5bn), its original loan has had to be increased from $85bn to $112.5bn, whilst the Treasury invested another $40bn in preference shares.

Treasury said the increased support "was necessary to maintain the stability of our financial system". But as Bloomberg reports, it means that loss-making AIG has effectively become a "zombie" company, along the lines of those created in Japan during its financial market collapse of the 1990's. "The living dead keep on walking", as one commentator described it.

The blog fears that this will just be the start of a trend, with one or more of the US auto companies likely to be given a similar "lifeline" before too long. Chemical company CFOs have yet one more thing to worry about.

The blog's forecasting record is reviewed in ICIS Chemical Business this week. Click here if you would like a copy. The blog's aim is to "highlight relevant information for the busy executive, and to provide relevant and actionable analysis of key issues". The article particularly notes the blog's willingness to challenge consensus forecasts.

The blog has warned for over a year that the chemical industry faced a global downturn. It has developed a good track record on forecasting movements in oil prices, and it also forecast the global financial crisis in early September under the heading 'the price of all assets will go down'.

A few months ago, Russia's economy seemed to be recovering from its problems in the late 1990's. High prices meant oil revenues were increasing, and the currency was strong. Now, the combination of the oil price collapse and the credit crunch has reversed the position. Yesterday, the central bank was forced to raise rates to 12% to slow the rouble's fall.

ICIS news reported this month that some planned petchem investments have already been postponed. Russia is also the world's 2nd largest oil producer. But as the blog noted in May, the easy gains in production have been made. Now, only "the difficult fields" remain to be exploited. Without cash, Russia's oil production will slow even faster, setting up more feedstock problems for the chemical industry in the future.

The UK's Finance Minister said today that interest rates might need to be cut "to an unprecedented zero". And the Bank of England warned there is a real "risk of persistent and damaging falls in prices". Deflation would be a major challenge for chemical companies, for two main reasons:

• Demand is deferred, because prices are falling. This is the opposite effect to inflation, which encourages demand to be brought forward to avoid the impact of rising prices.
• Inventory becomes very expensive, as it is always falling in value.

The chemical industry is suffering badly at the moment. The blog fears that if deflation arrives, as it did in Japan during the 1990's, life could become even more difficult.

I gave an interview to ICIS radio at EPCA in September, in which I warned that the destocking process would go through two phases:

• The first, which took place during Q3, was when companies destocked in response to the falling oil price, to a more "normal" level of stock
• The second, which would occur in Q4, as companies destocked further on discovering that end-user demand was actually lower than "normal"

Two months later, Peter Salisbury has just documented in ICIS Insight the disastrous impact of this second phase, which is now taking place as forecast. Hundreds of millions of dollars has now been wiped off the value of chemical companies' inventory.

The interview was highlighted in the blog, and I just hope that readers took the appropriate action in time, and have not suffered the full pain.

The Financial Times series on surviving the downturn focuses this week on CFOs. It includes advice from Feike Sijbesma, CEO of DSM, who suggests that "you need to see how creditable your debtors are, very quickly", and advises that "maintaining a good relationship with your creditors and banks is also critical".

The Key Tips from the article are worth considering by any CFO:

• Cash is king. Monitor it daily.
• Be visible. Raise your profile in the company.
• Rethink bonuses. Make them focused on cash generation.
• Stress test. Will oil prices stay at $50/bbl? Will we see deflation?
• Strike a balance. Be tough, but don't overreact.

CFOs have a vital role in preserving the financial health of the business. They need all the help and support they can get, at this critical time.

Andrew Liveris, Dow CEO, has consistently warned that we are facing a major recession. Today, in a Bloomberg interview, he spells out the need for "radical actions" to "take out capacity".

He notes that Dow's volumes are down 10%-20% this quarter, and expects this to continue into H1 next year. And he forecasts that "we could be looking at a couple of years of trough and severe correction".

Liveris says that Dow's prices for PE and PP have fallen 40% since September. And he warns that "holding prices in the commodities is going to be near impossible in the next 3 to 6 months". He adds that demand is falling in all the major regions of the world simultaneously. "To see a global contagion of this order of magnitude, I think that is what we are currently living, and that is probably unprecedented,'' Liveris said.

Liveris' view is that plant closures of older and higher-cost plants are inevitable. Otherwise, the industry will find itself operating at "less than 80% of capacity as demand declines". He expects that "Dow and others, I think, will be taking some radical actions to take out capacity".

As the blog argued last month, survival is the key priority at the moment for many chemical companies. CEOs and Boards need to focus on developing and implementing major change management programmes as quickly as possible.

The International Energy Agency (IEA) is the global energy watchdog. Its new annual report, just published, says "the world's energy system is at a crossroads", and adds that "current global trends in energy supply and consumption are patently unsustainable". As examples, it highlights:

• The world will need 45 mb/d of new capacity (4 times current Saudi capacity) by 2030, just to offset the effect of oilfield decline.

• Conventional oil production will only rise by 5mb/d between 2007-2030, "as almost all the additional capacity from new oilfields is offset by declines in output at existing fields".

• 51% of world oil supplies will come from OPEC by 2030, as non-OPEC output falls. Saudi Arabia will have to increase production to 15.6mb/d.

• NGLs, and new output from Canadian oil sands, will have to provide most of the supply increase that the world will require by 2030.

Yet in the short-term, oil prices remain under pressure. The value of the "OPEC basket" has now dipped below $50/bbl, causing OPEC to warn of further production cutbacks. And as the blog noted earlier this month, today's low refining margins, and year-end cash pressures, may well put further short-term pressure on crude oil demand.

So there is at least a chance that we may end the year with prices, temporarily, in the $20-$30/bbl range, just when the IEA is calling for major investment to fund new sources of production.

The first-ever G-20 meeting of Heads of State was a relatively quiet event, without the presence of President-elect Obama. Two main areas seem to have been discussed:

• Regulatory reform, where finance ministers have been given until the end of March to work out new rules for the world's financial markets
• Fiscal stimulus, where the International Money Fund (IMF) proposed countries should co-ordinate a stimulus of up to 2% of GDP via tax-cuts and spending

The scale of the current crisis means that it is going to take many months to put together a sensible and deliverable strategy for recovery. This will also require co-operation amongst all the major economic powers. The G-20 is certainly the right body to take this type of initiative, rather than the G8. The blog hopes that it is up to the task.

Current market conditions are causing problems for everyone in the chemical industry. But as the blog has long feared, they are particularly testing those companies with higher debt levels. On Friday, Moody's announced a downgrading of the Corporate Family Rating of Lyondell Basell Industries to B3 to B1, and said the outlook "remains negative".

Yesterday, INEOS asked for "a waiver on its covenants". As the Financial Times reports: "The highly indebted chemicals group is struggling with a loss on its large inventory of oil following the decline in petrochemicals prices. It is also feeling the knock-on effects of a rapid deterioration in the housing and automotive sectors, two big users of its products."

The FT says that INEOS currently has €7.3bn in net debt. Q3 EBITDA was reportedly 20% down at €402m, causing INEOS to ask for the waiver for the next 6 months "whilst we wait for the mists to clear". The FT adds that INEOS will present a new 5 year business plan to its bankers by April, and could consider selling assets to reduce leverage.

An interesting note from PetroMatrix highlights the close linkage that has now developed between changes in the Dow Jones Industrial Average and WTI crude oil prices.

The chart, showing market action on Thursday, makes the point very clearly.

PetroMatrix's analysis suggests that "the correlation across asset classes remains very strong and there is little diversification of sentiment or of asset fundamentals".

6 weeks ago, I warned that "the scariest moment of my 30 year chemical career" was about to be repeated. This had been in 1980, when "for some weeks it seemed that demand for many petchem products had simply stopped".

Three weeks later, the blog confirmed that "the moment it had long feared has now begun to happen. Everyone in the chemicals value chain suddenly realises that they have been living in a parallel universe. Whilst they have been building inventory in advance of future oil price-related increases, demand in the real economy has been collapsing."

The first company to report this "moment" was Celanese, whose chairman told analysts "basically, orders just stopped". And as the blog then forecast, this "moment" has since been "repeated in other product areas and in other regions", with the effect being magnified as "customers aim to keep working capital low for year-end reasons".

The blog went on to advise that "now, the task is simple. Those of us who had the misfortune to be around in 1980, at least know what needs to happen next. Supply and demand need to be rebalanced to today's lower level of demand as quickly as possible."

Today BASF have experienced the "moment". Chairman Dr Jurgen Hambrecht announced that "customer demand in key markets has declined significantly" since the end of October, whilst "sales volumes are being impacted by increased reduction of inventory by customers".

In response, BASF are following exactly the policy advised by the blog, and are "temporarily shutting down around 80 plants worldwide...and reducing production at approximately 100 plants".

The blog salutes BASF for their courage in taking this painful but necessary step. Clearly, there will now be a final period of inventory reduction down the chain, as CFOs insist that companies end the year with maximum cash on the balance sheet.

But the blog would counsel against keeping inventory too low. In January, the auto companies and other key industries will start operating again, after their extended shutdowns, and demand will return again.

Regular readers of the blog will know that it believes price movements in benzene have great predictive power. This is due to the fact that benzene is one of the oldest of the major chemicals, and has the widest industrial usage. Thus in March, when benzene prices hit a "ceiling", the blog noted this was indicating "that the outlook for commodity petchem profitability has also weakened".

Now, benzene is giving us another clear signal. Today's actual crude price is close to $50/bbl. Yet benzene's current $250/t price implies a crude price of $16/bbl (assuming the usual formulae of an $80/t conversion margin to naphtha, which in turn should be 10 times the crude price). And although anything is possible in today's markets, it is highly unlikely that OPEC would allow a $16/bbl price to continue on more than a temporary basis, unless we are entering a massive global slump.

Today's benzene prices are therefore giving us another clear message. Producers are selling on a firesale basis, because they have to clear inventory, in order to meet year-end cash targets. Last March, benzene was telling us that profitability was about to hit a ceiling. Now it is telling us that we are getting close to the floor.

My colleague Bob Townsend is well known to many in the chemical industry as an olefins expert. He has pointed out today's most unusual situation in olefins.

Normally, an unplanned outage by one or more crackers would cause major disruption. Yet today, 10 European crackers are down, for technical or other reasons, and many others are operating close to technical minimums.

Those offline include the Wilton and Moerdijk crackers (both technical), with planned maintenance ongoing at Repsol's Tarragona and FAO's NC1 cracker in Antwerp (and speculation another NC Antwerp cracker may also be offline). Munchmunster, Litvinov, Notre Dame de Gravenchon and Pitesti are also all reportedly offline. Priolo is due back after maintenance, whilst the Carling No 2 closure has been announced.

Other regions, notably Asia and N America are also seeing similar shutdowns. Yet Bob notes that butadiene is the only product where even minor shortages have been seen. This tells its own story about the massive clearance of inventory now underway down the value chain.

Last week's BASF announcement marked the end of Phase One of the downturn. This began over a year ago, with the first signs of financial crisis. Now, we will move into Phase Two - a long, multi-year recession, which will probably include several bear-market rallies.

The end of this "beginning" Phase is seeing a disastrous fall in demand, and fire-sale pricing, caused by three main factors:

Destocking. Customers are having to unwind the "extra" volumes bought ahead of price increases during 2007 - H1 2008. Plus, they are also having to unwind any panic purchases made in June/July, when oil was widely expected to be on its way to $200/bbl.

Demand destruction. Whilst all this extra inventory was being built, end-user demand into the key housing / construction and auto sectors was actually declining. So companies are also now having to adjust their stocks to this new lower level of demand.

Year-end factors. Companies are understandably anxious to exit 2008 with maximum cash on the balance sheet. This is reducing demand still further, albeit on a temporary basis.

The first factor meant many companies were holding 20% extra stock by the end of July. Now, they not only have to work-off this volume. But they are also having to adjust to ongoing demand levels that are 20% below 2003-7 levels. Effectively, therefore, the industry has suddenly hit an "air pocket", where physical demand has temporarily appeared to vanish.

The key question, of course, is what happens next? Demand is unlikely to resume previous growth levels for some years to come. But every now and then, there will be sudden rallies, when stocks have become too low.

Such a rally could well take place in Q1, with demand "surprising" on the upside. But it would be very risky to assume this rally also marked the end of the downturn, particularly if credit markets remain difficult.

The UK's Finance Minister, Alistair Darling, was the first western leader to warn that the current recession was the worst in 60 years. He was also the first to effectively nationalise major banks, to stave off their collapse. Now he has become the first to try to tackle the real threat of deflation, by cutting sales tax (VAT) by 2.5% to 15%.

The real problem with deflation is that it rewards buyers for postponing their purchases. Why buy today, when it will be cheaper tomorrow? We are already seeing the impact of deflation at work on chemical sales, and the results are not pleasant.

Darling's £12.5bn (€14.6bn, £18.8bn) VAT initiative is an attempt to tackle this specific problem, by offering a temporary tax cut that will expire at the end of 2009. As such, the blog welcomes the move. But unfortunately, £12.5bn may well prove too small an amount to counter the deflationary danger that Darling has correctly identified.

The World Bank has cut its growth forecast for China's GDP to just 7.5% next year. Only 3 months ago, it was expecting 9.2%. And the Bank warns that the economy is dependent on "higher public spending" for more than half its forecast growth next year.

Chemical companies will also be alarmed by the Bank's suggestion that China's "export growth is likely to slow sharply", as "financial market turmoil hit the economies in other emerging markets". The blog's own forecast last month, in 'Budgeting for Survival, that China's growth could bottom as low as 5%, is no longer looking quite so unlikely.

US housing continues to weaken as the financial crisis of the past 2 months takes its toll of prospective homebuyers. Yesterday's Case-Shiller index of house prices showed a "broad-based decline" in September, posting record annual declines of 17%.

Similarly, the above chart from the ACC's weekly report shows new housing starts (red line) at a record low since they were first recorded in 1959. Building permits (blue line) are a leading indicator of future activity. These also remain weak, and are 40% down on 2007.

In response, the US Federal Reserve has committed $800bn to support mortgage finance. But as the blog has now argued for over a year, such measures do not address the real issue, which is that long-term interest rates are too high. This is because banks are scared to lend to each other, and so the LIBOR rate doesn't respond to changes in short-term rates.

Nouriel Roubini has some useful suggestions this morning as to what could be done to improve the situation, including the direct purchase of long-term credit instruments by the Fed. The blog hopes that the Obama team is already working on how to put such ideas into practice.

The Queen of England recently asked "Why did nobody see the financial crisis coming?"

The Financial Times took the view that "Some did, Ma'am. Some did." It then initiated a search for these people.

Today's Financial Times now recognises some of those who correctly warned that financial crisis was close. I am sure readers will be pleased to know that it chose to highlight my analysis, and the blog itself.

Surprisingly, our 7th European conference this week in Cologne (co-organised with ICIS), was one of our most successful. Delegate numbers were down, as companies cut travel budgets. But those attending said they had gained much more, than if they had stayed in the office.

For a start, there was the opportunity to share experiences, and put today's problems in context. My colleague, John Keeley, focused on the scary nature of today's demand slump when opening the conference. But he also reminded delegates that one must remain pro-active. His "yes, we can" approach became the key theme of the event:

• Pierre-Emmanuel Goffinet of GTIS showed how companies could use trade statistics to better understand what is happening in their markets
• Phil Allen of GEMS outlined new marketing tools to maximise profit by better understanding customer needs
• Wood Mackenzie suggested that the coming gasoline glut created an opportunity for producers to obtain cheaper feedstocks

Delegates also came away with a real insight into current problems in financial markets. Nigel Davis of ICIS insight analysed the factors behind the current collapse in demand. Whilst Paul Satchell of ING, who had correctly warned last year that the crisis had hardly begun, focused this year on the problems caused by lack of visibility down the value chain.

Summing up the 2 days, I said that I hoped the New Year would see a welcome recovery in demand. Factories will reopen downstream, and customers will need to rebuild inventories. But I warned that this would provide only temporary relief, with housing and autos in recession.

My advice was therefore to use the next few weeks to develop, and implement, robust plans to survive an extended downturn.

Japan has an ageing population. Since 1990, it has relied on exports to boost its economy.

Yesterday, official figures showed industrial production is now being badly affected by the global recession. Output fell 3.1% in October, and a 6.4% decline is expected in November.

Observers forecast the September - December period could see an "unprecedented" total fall of 12%. And unfortunately for the chemical industry, auto production was worst-hit last month.

A vicious cycle is clearly now underway, whereby lost exports will lead to major job cuts, and further reduce consumer spending. Japan's economy minister, Kaoru Yosano, also warned this would increase "deflationary pressure on Japan's economy".