Force majeures decline as operating rates slow

FMs Jul12.pngThe good news is that the blog’s 6 monthly review of force majeures shows considerable improvement from H1 2011’s performance. As the chart indicates, the number of ICIS news reports of force majeures halved from 375 in 2011 to 179.

Some of the decline was, of course, expected as there has thankfully been no repeat of Japan’s disaster in March last year. Equally, output has been reduced in recent months, and so any outages have not necessarily led to the need to declare force majeure.

But good news is good news. It is also sound business sense for companies to maintain their plants properly, and train staff to high standards. Investors greater awareness of safety issues post Deepwater Horizon has probably also been helpful.

Of course, during tight markets, unplanned plant outages only serve to push prices higher, so the penalty for poor performance is minimised. But when markets weaken, customers have more choices.

They tend to remember those who were reliable suppliers. And they often penalise those who weren’t. As a result, the weaker performers find contract sales harder to achieve. And very often, their selling prices also suffer – just at the moment when they can least afford this.

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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