Economy, energy and uncertainty in the air at Chemical Purchasing Summit
By Rich Weissman -- Purchasing, 10/16/2008 6:00:00 AM
On a day where the stock market dropped more than 400 points, the ballroom of delegates to The Chemical Purchasing Summit remained reserved, yet seemingly optimistic. This Boston based-event, organized by Purchasing magazine and ICIS and sponsored by PriceWaterhouseCoopers, brought supply chain professionals from around the world to try to get a handle on the volatile chemicals market. They learned that the handle is tenuous at best, at least well into 2009. And, maybe beyond.
"The U.S. economy is on thin ice," said Scott Anderson, vice president and senior economist for Wells Fargo Economics. "And the current credit crunch is like a raging forest fire at the whim of the wind." If not in a recession, Anderson feels at least we are operating in a recessionary environment and sees no signs of relief.
"There are higher costs for raw materials, energy, and freight, and while the price of crude oil has moderated recently, there is continued uncertainty," said Anderson. "Also, business conditions are rapidly eroding in Europe, the U.K., and Japan in addition to the U.S."
"There has been a consolidation in the plastics and the chemical industry in the past 10 years," said Anderson. "There is also globalization, with operations moving to Asia and the Middle East." Anderson also spoke of the consolidation in the industry, where the greater capital and customer requirements have boosted plant efficiency and allows for some hedging of energy price risks.
Anderson tied the economic upheaval we are experiencing to the sub-prime mortgage mess. "As the economy weakens, job losses increase," said Anderson. "In some families one of the wage earners has lost their job, leading to uncertainty and cash flow issues, which of course, causes less spending." Anderson also pointed to various other economic trends such as increased debt ratios, mortgage foreclosures and negative credit spreads as contributors to the current economic conditions.
Anderson did see a bright spot in today's market: "Inflation expectations are lower due to the decrease in crude but core inflation improvement will lag for another year."
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