By John Richardson
WITH US oil prices now below $40 a barrel and so heading in the direction that I’ve warned about since the “fake recovery” in February-June, people will be panicking, quite understandably. The global collapse in stock markets will also be adding to this sense of panic.
The immediate job will also be to manage cash flow, to talk to banks who will hopefully show some understanding.
You also, of course, cannot afford to make any mistakes on inventory management. But I worry that this might be too late and that some chemicals companies will find themselves in the same position as late 2008, when major inventory losses pushed them into severe financial difficulties. I really hope I am wrong about this as I have many friends in this industry who I want to see do well.
Beyond panic and immediate emergency action, though, people need to also start looking to the future. The opportunities, as I have consistently written over the last three years, are nothing short of fantastic. This has never been a doom and gloom story, but instead one of huge new opportunities based around demographics, providing basic needs such as decent food, water and sanitation etc. and tackling environmental problems. But, sadly, I worry that it will have in effect become a doom and gloom story for chemicals companies still stuck in the old ways of thinking.
This is a debate that needs to continue as, of course, there is no space to do this justice on one blog post. But as you try to look to the future, beyond immediate cash-flow management issues etc., here are just five things you must not do again:
- Listen to anyone who talks about urbanisation and the rise of China’s middle classes as guarantees of that country’s long-term economic success.
- Listen to anyone who only talks about China’s official GDP growth numbers as a reliable measure of that country’s growth.
- Listen to anyone who tells you that the growth in other emerging markets can make up for problems in China.
- Listen to anyone who tells you that we are in age of energy scarcity, which means that the natural long-term price for oil is close to $100 a barrel.
- Listen to anyone who tells you that it is only feedstock advantage that matters to the petrochemicals business, as demand always takes care of itself.
It would also make sense to doubt the approach of people who have suddenly changed direction on order to fall into the new consensus view of the world.