January shows worrying rise in force majeures

FMs Jan13.pngAs the major regional economies continue to slow, more companies are starting to reduce capital budgets. Maintenance spending is always an easy target for a cutback. The cost of poor performance may not be seen for some time, whilst the bottom line sees an immediate benefit. Thus it is worth keeping a careful eye on force majeures, as they provide early indication of problems ahead.

Q4 saw relatively low operating rates, so the blog deferred its usual 6-monthly review until now, to enable January performance to be analysed as well. When there is little demand, as in Q4, there is little need for companies to declare force majeure. They can instead carry out repairs without disrupting deliveries.

The chart suggests some concern is necessary, with 27 force majeures reported in January versus only 18 in 2012. This was a different picture to H2 2012, when there were just 117 reports versus 179 in 2011.

The question today is whether it is January’s trend, or that of H2, that continues. If companies have been sensible, and kept up on maintenance, then they should now demonstrate a steady operating performance. If not, then customers and investors will no doubt start asking awkward questions about whether short-term profit improvement has jeopardised long-term survival.

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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