“BASF, the world’s biggest chemical maker by sales, has slashed its revenue and earnings targets for 2015, following a further weakening of the European economy and a slowdown in China.”
Saturday’s Financial Times headline said it all. BASF’s statement adds to the growing evidence of a major slowdown taking place in the global economy, and highlights how recovery seems as far away as ever.
Latest data from the American Chemistry Council also confirms that hopes for a recovery are fading. It showed no increase in Capacity Utilisation in the global chemical industry. In fact, as the chart shows, the rate fell 0.1% to 83.2% in September and remains well below the historical average of 92%. As the ACC note:
“Gains in production were centered in North America (aided by the shale gas revolution) with nominal gains in Central & Eastern Europe and Asia-Pacific. Over the same period, chemical industry production contracted elsewhere.”
Next Monday, I will publish my annual Budget Outlook. And so as usual, today’s post looks back at last year’s Budget Outlook. Past performance may not be a perfect guide to the future, but it is the best we have. All previous Budget Outlooks are also now available in a new Research Note – please click here to download a free copy.
A quick summary of the Budget Outlooks since they began in 2007 is as follows:
•The 2007 Outlook ‘Budgeting for a Downturn‘, and the 2008 ‘Budgeting for Survival’, forewarned readers of the coming Crisis, when most expected the good times to continue
• 2009′s ‘Budgeting for a New Normal’ was then more positive than the consensus, suggesting “2010 should be a better year for the chemical industry, as demand grows in line with a recovery in global GDP“
• The 2010 Outlook was titled ‘Budgeting for Uncertainty’. This introduced the concept of Scenario planning, to help deal with “today’s increasingly uncertain New Normal environment.”
• 2011 was titled ‘Budgeting for Austerity’. It anticipated weak growth across Europe as a result of the austerity measures being introduced, and disappointing global growth, whilst arguing that major new opportunities were opening up as a result of changing demographic trends.
2012 was titled ‘Budgeting for an L-shaped recovery’, arguing that the idea of a recovery back to SuperCycle levels of growth would prove wishful thinking. This was again a contrarian view, as policymakers at the time were insistent that full recovery was now inevitable, if slightly delayed.
Reading back through last year’s 2013 forecast, ‘Budgeting for a VUCA world’, it is also hard to find much that one would wish to change today. Most of the key issues that it highlighted have now become more widely accepted, although they were controversial at the time:
- Its argument about the negative impact of policymaker stimulus and the risks of a “boom-bust cycle” in emerging economies are now the subject of major political debate
- Oil and commodity prices have, of course, also tumbled as forecast, whilst the impact of China’s new economic policies is clearly now a major concern
- Even those issues which have been less prominent are starting to attract attention again
- Few now believe the Eurozone crisis has been solved
- US political dysfunction seems likely to move centre stage again after next week’s US mid-term elections
So all in all, companies would have had few surprises had they followed this Outlook. And “no surprises” is always the key for a successful Budget. It creates a positive dialogue with investors and allows employees to execute agreed plans without sudden panics setting in.
I hope readers found the 2013 Budget Outlook helpful in making their own plans. Encouraged by this latest success, the Budget Outlook for 2015-17 will be published next week.
WEEKLY MARKET ROUND-UP
The weekly round-up of Benchmark prices since the Great Unwinding began is below, with ICIS pricing comments:
PTA China, down 24%. ”End users were citing difficulties in passing down such additional costs to their customers, on the back of relatively weak global macroeconomic conditions”
Naphtha Europe, down 21%. “Demand from outlets such as the Asian export market remains weak, and consequently naphtha supply in Europe remains long.”
Brent crude oil, down 18%
Benzene Europe, down 11%. “Traders pointed to shutdowns across Europe keeping supply tight.”
S&P 500 stock market index, up 1%
HDPE US export, up 4%. “Prices remained unchanged – or unworkable, as one trader described them. Other sources agreed, describing a big difference between US prices and lower international levels.”