Destocking follows previous recession experience

stocks feb09.jpg

Destocking is currently a key issue for the chemical industry. The above chart, from Andrew Sentance of the Bank of England, provides some useful clues as to where we are in the cycle. It shows current performance (the green line) versus the history of stock levels in the recessions of the early 1980’s (blue) and 1990’s (red). It is based on UK industry, but should be reasonably representative of global conditions.

Each line begins 5 quarters before the start of the recession. They show that the onset of recession typically causes a period of “aggressive destocking“. History would therefore suggest that we are now past this point. However, they also indicate it will be some time before demand picks up sufficiently for inventories to return to pre-recession levels.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. He also serves as a Global Expert for the World Economic Forum. The aim of this blog is to share ideas about the influences that may shape the chemical industry and the global economy over the next 12 – 18 months. It looks behind today’s headlines, to understand what may happen next in critical areas such as oil prices, China and Emerging Markets, currencies, autos, housing, economic growth and the environment. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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