My first European Petrochemical Association (EPCA) meeting was in 1985. Since then, I have found that it provides an unique opportunity to look back over the current year, and focus on what might happen next.
Thus in October 2007, just after I began writing the blog, my discussions led me to warn that we were at "a turning point in the petchem cycle". Similarly, last year, it helped to convince me that we should expect "a multi-year downturn" of the type we had seen in the early 1980's and 1990's, and not a short V-shaped recession as in 1997-8 or 2001-2.
This year, however, I found myself sharing the consensus view. Very few people claimed to see any sign of a real upturn in critical demand areas such as housing and autos. In fact, visibility on future orders seems as low as ever, as companies focus on reducing working capital for year-end.
This led me to reflect on where we are in the industry cycle. As readers know, I have long argued that the 2007-8 period was paralleling 1979-80. Then, as recently, a major oil price rise led to a massive rise in inventory (as companies bought ahead to beat price rises), whilst end-user demand was collapsing. And the result was the same - a traumatic collapse in demand as people destocked, followed by modest restocking.
Thus I found myself thinking of parallels with 1981-2. And I was reminded of an excellent series of lectures that I attended many years ago at the IMD business school, given by Prof Casse. His summary slide, above, provides the clearest view I have ever seen of the "life-cycle" through which industries seem to pass. It features 6 distinct stages:
1. The industry enjoys some success and cautiously expands (eg 2003-4)
2. Emboldened by success, it then takes greater risks (eg 2005-7)
3. Sadly, it then hits problems, and failures occur (eg 2008)
4. It discovers there is no "quick fix" and begins to struggle (eg 2009)
5. Then, it begins to learn from its mistakes (2010 ?)
6. Finally, it discovers strengths and potentials (2011 onwards?)
This year in Berlin, I was reassured to find a number of companies, including many of the largest, starting to move into Stage 5. I found this very positive. Clearly we face major difficulties as an industry, with slow demand growth and growing over-capacity. But there will also be opportunities, for those who correctly identify the strengths that will be required to access them.
(If you would like a copy of Prof Casse's key slides, please click here)