Dan Henderson vs Quinton Jackson

The issues in boom economies are extra local. And the largest one is what takes place whilst China is going ‘warm’ and implements its own controls.” There are symptoms that China did tap the brakes on its economy in June, July, and August, however Liveris says that call for in China is bouncing returned. “Our corporations in China are quite strong for the time being,” he says. China’s monetary coverage will probably stay centered on stimulating domestic call for. “And that is developing a global engine of increase that is not only powering China and the Far East, but also the Middle East and Africa given the investments China is making round the world,” Liveris says.

Economic boom is expected to be gradual inside the U.S., says Nariman Behravesh, leader economist at IHS Global Insight (Lexington, MA). IHS is the eastman cello price  parent corporation of Chemical Week. Among primary chemica l substances give up markets, car demand is up within the U.S., despite the fact that not with the aid of plenty, however electronics demand has declined and construction is “bouncing along the lowest,” Behravesh says. IHS Global Insight estimates there’s a forty% danger of a new recession within the U.S. And says that a slight recession is probable in Europe.

Growth Still Positive
Cefic reverted remaining month to an earlier forecast of 2.Five% for EU chemicals output boom in 2011, having raised its growth outlook to 4.5% as lately as June. EU chemical compounds output rose zero.8% in July, the month with the maximum currently to be had figures. U.S. Chemical compounds output is anticipated to rise 4.1% this yr and 3.5% next year, in step with ACC’s maximum recent forecast. However, ACC’s U.S. Chemical manufacturing nearby index (CPRI) changed into flat in August and fell zero.Five% in July. China, however, maintains to power worldwide chemical and commercial markets, even as tremendously strong growth quotes moderate. The China Petroleum and Chemical Industry Federation (CPCIF; Beijing) says that the fee of chemical enterprise output in China expanded 37% 12 months-over-12 months through August, in comparison with the yr-ago period, to Rmb4.2 trillion ($659.3 billion). Industrial production in China increased 13.5% yr-over-yr via August, down barely from a 14% gain in July.

Industry executives see a disconnect between current turmoil in monetary markets and comparatively robust fundamentals inside the broader economy, “Generally, there’s ‘wonderment’ approximately what the scenario is,” Ben van Beurden, CEO of Shell Chemicals, says. “There isn’t any monetary disaster. It is a monetary disaster however in some unspecified time in the future this could have an effect on the financial system.”

“We had a crackling first 7-eight months of this 12 months however there has been a softening in demand during the last month and a half,” says Sven Royall, v.P./worldwide intermediates at Shell Chemicals. The softness “appears to be the end result of lower demand for customer durables,” Royall says. “This yr is, in the blend, like 2010, which changed into a better-than-predicted 12 months. There’s no cause at this point to say that 2011 will be worse than 2010.” Demand in China, meanwhile, seems to be conserving up. “There’s some proof of softening in China and that’s to do with what’s taking place in Europe and the impact on Chinese exports,” Royall says. “But China remains quite sturdy and the home market is not slowing down.”

Some softening has come from inventory changes, manufacturers and analysts say. Lower uncooked material and strength costs have encouraged destocking, says Mark Eramo, v.P./chemical industry research and analysis at IHS CMAI. “The stage of warning is increasing, and manufacturers and purchasers are keeping lower stock and in search of to cut them in addition if they could.”

The sovereign debt disaster within the EU, especially Greece, lies at the back of the risk of recession in Europe and the U.S. There is concern that Greece may default on its debt and probably be compelled to depart the euro region, a development that would be Europe’s “Lehman moment,” Behravesh says, relating to the Lehman Brothers disintegrate that induced the 2008 financial disaster. “It could bring about a huge monetary crunch in Europe, it’d unfold to Spain and Italy, and you’d see a huge credit score crunch,” Behravesh says. That could lead to a deeper financial contraction in Europe than currently forecast.

There do appear like a few liquidity constraints emerging in Europe, Liveris says. “Whether we’re going through a liquidity crisis will probably be found out inside the following couple of months,” he adds. Dow is carefully tracking customers, and there are a few remoted problems with liquidity in Europe as a result of banks that are unwilling or unable to lend. Liveris expects any liquidity issues to be contained in Europe, however. “It’s now not 2008-09 all once more as it’s not the U.S. Banks this time, it is the European banks,” he says. “The U.S. Banks have taken their lumps and settled into the ‘new regular’ situations. This is one motive why we view the U.S. As a modest boom scenario.”

Growth in Latin America is expected to stay sturdy, with some exceptions together with Venezuela. IHS Global Insight forecasts Brazil’s GDP growth to be three.6% this 12 months, down from 7.5% closing yr, broadly speaking due to economic tightening. However, Brazil is predicted to rebound to four.1% growth in 2012. Deceleration of growth across most important rising economies this 12 months is the end result of reduced exports to the U.S. And Europe in preference to vulnerable home markets. IHS Global Insight expects nine.2% GDP increase in China for this 12 months, slowing to eight.Three% next yr.

Japan’s chemical enterprise has been resilient following the tragic March eleven earthquake and tsunami, aided by using quicker-than-predicted recovery in key deliver chains inclusive of car and electronics. “So a long way we’ve now not downgraded our expectancies but we are concerned at what’s happening at the monetary markets, particularly in Europe,” says Kenji Fujiyoshi, chairman of Mitsui Chemicals. Japan’s ethylene manufacturing via July became essentially flat compared with the same 2010 period, says Masahiro Yoneyama, v.P./Japanese operations at IHS SRI Consulting (SRIC; Tokyo). Japan’s ethylene equivalent intake thru July became 9% higher than 2010. “Consumption isn’t always lower back to 2008 pre-recession ranges however is better than 2010 and 2009,” Yoneyama says. A more percentage of call for is being met through imports, but, as Japanese chemical makers deal with high feedstock costs and a sturdy yen. There is developing challenge approximately the near-term outlook, he provides. “Global economic turmoil will affect Japanese export-oriented organizations. Exports could be stagnant because of a completely robust yen and weaker call for of overseas international locations.”

IHS Global Insight says there may be a 25%-30% chance of a worldwide recession, contingent mostly on the final results of the EU sovereign debt disaster. The base case is for worldwide GDP growth of 3% this yr, and a mild growth to a few.Four% subsequent yr.

Despite the hazy outlook and slowing growth, most chemical companies aren’t in panic mode. Eastman Chemical “is seeing a everyday order e book,” with predicted seasonal variations, says CFO Curt Espeland. However, smooth call for is displaying up in some elements of the commercial enterprise. These consist of solvents in North America, and packaging and oxo-alcohol spinoff products in Asia, Espeland says. Eastman is in the technique of scenario planning for 2012, and the business enterprise is constructing a recessionary surroundings into its baseline projections for cost and capital spending, Espeland says. However, the move is basically a hedge in opposition to monetary uncertainty, and the organization plans to boom funding in new merchandise have to more sure boom expectations resume.

At Dow Chemical, a few commercial enterprise segments have seen slower increase inside the 2d half of, however the order e-book does now not imply a primary economic surprise, executives say. “The temper isn’t that excellent,” says Howard Ungerleider, senior v.P. And president/overall performance plastics at Dow. “But call for is higher than the mood.”

Outlook Hazy
Uncertainty is chemical groups’ predominant challenge with demand patterns in the following few quarters difficult to examine, enterprise insiders say. “Visibility has long past down over the past couple of months,” says Barry Siadat, companion at SK Capital (New York), a personal equity company with an possession stake in Ascend Performance Materials, the previous nylon business of Solutia. “Our customers aren’t telling us what they count on and no one definitely is aware of.”

“I see the concern level as cautious,” says Michael Sison, dealing with director at KeyBanc Capital Markets (Cleveland). “What I am hearing from corporations is that we are not going to be in a recession, but a very low increase outlook.” Industrial gases, research chemical compounds, and flavors and fragrances are anticipated to preserve growth, he says. End markets dealing with the weakest demand will generally be those that are closest to the patron, says Telly Zachariades, associate with The Valence Group. Chemical buyers can also begin drawing down inventories in response to the slow purchaser demand outlook, he provides.

Most chemical businesses agree that a return to 2008, whilst clients stopped shopping for and lived off inventories, sending chemical prices right into a downward spiral, is surprisingly not likely. “The scenario in 2008 turned into a natural economic surprise,” Espeland says. “Financial and credit markets almost collapsed and also you had much larger inventory within the fee chain so people hit the brakes difficult.” The availability of credit score has long gone down, however distinctly rated companies can still faucet the credit score markets distinctly effortlessly.

Company stability sheets also are a whole lot healthier than 3 years in the past-possibly the healthiest they have ever been. There are currently record tiers of coins on corporate stability sheets, Behravesh says. Chemical businesses, which built up massive quantities of coins throughout the monetary upturn of 2010, in part by means of slashing inventories to cut operating capital, are no exception. “The balance sheets for plenty of companies, consisting of customers, are a great deal better,” Sison says. The chemical industry has additionally benefitted from a duration of restructuring and potential rationalization. Lower inventories also suggest that a glut of chemical products is much less probably. “Most groups say stock stages are not as bloated as they have been in 2008,” Sison says.

Margins, too, are higher, by way of 2 hundred-500 basis points this time round, Siadat says. Rising raw material expenses since the begin of 2011 are setting strain on margins, however many groups were capable of pass higher fees directly to customers. Volumes in chemical cost chains fell 20%-30% as soon as the crisis hit in 2008 as customers used up inventory, and that took a numerous quarters to paintings off, Sison says. Such a state of affairs is tough to imagine nowadays, industry leaders and analysts say.

M&A May Slow
The abrupt halt in M&A hobby that accompanied the 2008 crisis is also unlikely to copy itself, even though a slowdown is possibly, experts say. Chemical organizations are persevering with to pursue offers regardless of the unsure financial system and turbulent monetary markets, Zachariades says. Auctions of chemical property have often not long past nicely recently and groups have pulled assets off the market because of a loss of hobby or because consumers had been unwilling to meet dealers’ expectations on charge, Siadat says. Directly negotiated offers, such as a few multibillion-greenback transactions, were extra successful. “I think at once negotiated offers with strategic hobby will retain to occur,” Siadat says. But, unless dealers deal with expectations, auctions will stay difficult, he says.

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