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BASF warn on over-expansion and China

Chemical companies, Consumer demand, Economic growth, Financial Events, Futures trading, Oil markets
By Paul Hodges on 12-May-2011

Penkuhn.pngThe blog was very interested to see a recent ICIS interview with Torsten Penkuhn, BASF’s petchem head in Asia, by Will Beacham. Penkuhn noted:

We are more and more concerned at BASF about an increasing risk of overbuilding once again. We currently see a risk that people are becoming too ambitious, enthusiastic and optimistic. And that could lead us to where we have already been in this industry.

“The cycles are not self-created by magic; it’s the industry which creates them. Overcapacity will be bad news for all of us, as it will lead to margin erosion and then it will come down to who has what cost position. When you’re in that position, that’s when the fun stops.

“Industry has a responsibility to look at cycles as man-made: we create them, they are not thunderstorms. I feel optimistic that people are able to learn from the past.”Penkuhn was much more cautious than Dow about the short-term outlook in China, noting that:

Underlying GDP growth in China is around 9%, with chemical industry growth perhaps into double digits. But if you look at Q1 results, you see 15-20% sales growth. So there is an underlying speculative element which comes from an anticipation of shorter availability of credit. There has been some pre-production by people worried about their credit lines being withdrawn.”

Penkuhn also seems to share the blog’s view that government efforts to control inflation will have a negative impact on China’s manufacturing growth. “They cannot have inflation above 5% and they need to cool their economy“.