Top 100 2010 logo.jpgSource of picture: ICIS


By John Richardson

ICIS has just published its Top 100 listing for 2009, which, not surprisingly, reveals the nothing-short-of devastating impact of the global economic crisis on chemical company financial performances.

“Unprecedented operating and financial conditions helped drive annual sales for industry giants down more than 30%,” writes my colleague Nigel Davis, in an ICIS news article yesterday about this year’s Top 100.

The danger, as Nigel also points out, is that – to use a cliche from football or soccer – 2010 could be a game of two halves. Withdrawal of stimulus programmes in a new age of austerity has the potential to severely dent the remarkable rebound in chemicals demand that continued until at least June of this year.

My fellow blogger Paul Hodges has also written extensively about changing demographics and consumer behaviour (the result of the debt-fuelled pre-crisis spending binge) as major long-term threats to the chemicals industry. This includes a recent article in the Financial Times.

And in a series of blog posts over the next few weeks we will examine the Chinese government’s ever-more difficult balancing act as it seeks to cool down overheated sections of the economy, while still stimulating domestic growth by a sufficient amount to replace lost exports to the West.

But that’s the demand story. On the supply side, as we’ve written about before here, some polymer and chemicals markets remain remarkably tight because of the lingering impact of the Lehman Bros-triggered financial crisis beginning in September 2008.

For example, oil demand remains below pre-crisis levels – resulting in reduced associated gas supply to Middle East petrochemicals.

Lack of investment in maintenance in an effort to preserve cash might also be keeping petrochemical markets tight as plants seem to be breaking down with greater frequency.

Supply of certain petrochemicals is being constrained by factors relating both to the crisis and big shifts in consumption and production patterns over many years that have now gone beyond “tipping points” – most notably in the case of propylene.

And so if I were to be looking to pick winners and losers from the ICIS Top 100 for 2010 – which we will be publishing this time next year – I’d be looking closely at a company’s product portfolio.

Key data to mine are what percentage sales a particular company derives from each of its products.

If I were looking for winners I would, for instance, be focusing on anybody with a heavy exposure to merchant sales of propylene and C4s.

Low-density polyethylene (LDPE) is an example of a polymer that’s benefited both from a plethora of production problems (provided, of course, your plants are not down!) and resilient popularity that has confounded demand-growth forecasts. There has, as a result, been insufficient investment in new capacity.

A big challenge to LDPE’s position in Asia is the increase in metallocene production in this region.

But metallocene-grade linear-low density polyethylene (LLDPE) is more expensive per tonne than LDPE. It goes further – allowing down-gauging – but you have to persuade converters very comfortable with LDPE to make the switch.

Major Middle East start-ups during 2010 will inevitably result in big increases in sales for producers such as SABIC.

But assessing just how big will require close monitoring of feedstock availability – and logistics – issues.

The region also seems likely to continue to suffer from more than its fair share of production problems.

This is the kind of depth of analysis we offer to our ICIS training customers during our training events and our Asian Markets Seminars.

We raise awareness of the key changes in the industry over the last two years (and keep regular and close track of how these changes are evolving) in order to help you plan for the future.

We don’t claim to have all the answers, but we never assume that history will repeat itself in exactly the same fashion.


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