INEOS’ Grangemouth plants on strike

Ineos’ 200,000bpd Grangemouth refinery in Scotland is on strike today and tomorrow, over a pension dispute. This will presumably cost the workers 2 days pay. The costs for INEOS and the UK are enormous in comparison. BP, for example, has had to shut down a pipeline that carries 40% of the UK’s oil production, because it is powered from Grangemouth. Bloomberg suggests that N Sea producers alone might lose £50m/day whilst the refinery is shut.
INEOS, of course, will also lose. The refinery and associated petchem plants had to be shut down last week, before the strike started. And the company estimates that it may take up to 3 weeks for full supplies to be restored. Some financial analysts have suggested the overall cost could amount to $60m. In addition, of course, there is all the disruption caused to INEOS customers, and other parts of the industry.
The strike also creates political risk for INEOS, given the potential for it to disrupt gasoline and fuel supplies across Scotland, where it is the only refinery. This is an uncomfortable position for any company, and one that will not be helped by the coincidental publication today of the UK’s annual Rich List in the Sunday Times. This ‘sharply’ cuts INEOS’ value to £2.5bn as a result of its ‘hefty borrowings, an economic slowdown and more competition from the Middle East’. Even so, according to the Sunday Times, Jim Ratcliffe, INEOS’ owner is still in 25th place and worth £2.3bn, more than double the Times’ estimate of his worth in 2006.
Even after the plants are back online, there is no guarantee that further strikes will not occur, as the pension issue looks unlikely to disappear quickly. Whilst an interesting new note from Goldman Sachs, published before the strike was called, suggests that INEOS’ value may continue to ‘underperform over the next 12 months’. Goldman base their view on the fact that ‘Ineos has not reduced leverage ahead of the coming cyclical trough, during which we think it will be among the most highly levered commodity chemical companies.’

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