Tough times foreseen for petrochemical suppliers
Economists say a U.S. recession could hit chemicals globally
By Tom Stundza, Purchasing.com, and Joseph Chang, ICIS.com -- Purchasing, 9/17/2008 11:25:00 AM
The U.S. economy is about to enter a credit crisis-driven recession that will the impact the global petrochemicals market, forecasts Kevin Swift, chief economist at the American Chemistry Council. “The credit crisis is leading to losses of around $500 billion—half in the U.S. and half overseas,” Swift today tells the Chemical Purchasing Summit in Boston organized by ICIS and Purchasing magazine. "A shallow downturn and recession scenario with a tepid recovery is likely, with continuing high risk of a major downturn.”
Meanwhile, crude oil prices will continue to range between $77 and $155 for the next two years, creating “severe problems” for the petrochemical industry and the U.S. and global economies, forecasts Andrew Weissman, senior energy advisor at FTI Consulting in News York. “Prices now are around $94/.barrel and could remain moderate or fall further briefly, but are likely to rebound soon and continue to escalate sharply back above the $147 of last July,” he tells the Chemical Purchasing Summit today.
Economic growth is slowing across the world, according to the economists, putting a dent in the theory of decoupling--which states that a slowdown in economies such as in the US and Western Europe may not have much of an impact on growth in other emerging economies. “We are still coupled and live in one world. Transmission is in place," Swift says. “The softness in the US and Western Europe is spreading to Eastern Europe, and Asia is vulnerable. Latin America had benefited from high commodity prices but now that is weakening.”
Global chemical volume growth, which is tied closely with industrial production, is poised to slow to 3% in 2008 from 4.5% in 2007 and 5.2% in 2006. North American volumes are expected to fall 0.2% in 2008. That’s why North American chemical output fell 1.2% year-on-year in August, according to Swift.
Weissman says the chemical and plastics industry “should be prepared for even more severe costs problems ahead,” and suggests that the energy price shocks of the first half of 2008 aren’t being taken seriously enough. “The runup in oil prices was an early warning sign of severe price dislocations and shortages that also could spread to natural gas, liquefied natural gas and electricity.”
Acknowledging that his outlook is “somewhat pessimistic,” he insists that high prices and tight supplies ahead “could throw the U.S. into deep recession and cripple the petrochemical industry.” Weissman says that “the assumption that the status quo of the energy market will continue and the assumption that the government institutions monitoring the economy and energy fundamentals have a firm grip are just plain wrong.” He points out that declining crude oil prices have been caused by fear of an imminent global financial crisis following the collapse of Lehman Brothers and takeover of Merrill Lynch and not because of oil demand/supply fundamentals.
Other news from the Chemical Purchasing Summit:
Conference review: Economy, energy and uncertainty in the air at Chemical Summit
Deloitte economist: Link risk management and purchasing
POET gives update on cellulosic ethanol plants
SOCMA chief tells buyers: Be prepared
Credit crisis and economy are bound to worsen
Organic chemical buyers need to be vigilant on quality
Strong long-term polyethylene demand expected
Global resins oversupply seen by 2015
Cap and trade will increase energy costs
09/16/2009
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