Helping you navigate the new normal
As promised, the blog looks today at the USA’s trade position in polyethylene (based on data for the January-August period from Global Trade Information Services, the leading global supplier).
The chart shows US net trade (exports less imports). This…
It is 5 months since the blog launched its IeC Downturn Alert, using prices from 29 April. It wrote then that:
“They don’t ring bells at market turning points. Otherwise, we could all retire to the Bahamas.”
But its argument was that a peak was li…
Financial markets have become increasingly nervous in recent weeks, since the blog last reviewed developments in global bond markets.
Its conclusion then was that investors are worrying more about return of capital, than return on capital, as we trans…
Yesterday’s Scenarios hopefully provided valuable insight into the challenges ahead for companies and individuals. They also suggest some Critical Success Factors for achieving a successful transition to the New Normal, as set out in the chart above:
…
The transition to the new Normal is likely to be painful and long-lasting.
Future demand growth will be slower as the ageing Boomers spend less and save more.
More regular and deeper recessions are likely to become a feature of the global economy o…
Today’s economic situation is getting worse, not better. The blog believes this is because most policymakers still refuse to accept the wisdom contained in the Beatles’ ‘When I’m Sixty-Four’ song on their iconic Sgt Pepper album.
The Western BabyBoo…
The chemical industry has a turnover of $3.4trn, and is the world’s 3rd largest industry. It matters to the global economy.
Many of its leaders are about to meet next weekend in Berlin for the annual European Petrochemical Association (EPCA) meeting….
Many readers have been taking a well-earned break over the past few weeks. The blog also continues to gain large numbers of new readers, as the financial crisis intensifies. As usual, therefore, it is highlighting key posts during August, to help you…
Greece is about to become the first developed country to default on its debts since 1964. On Thursday night, Eurozone leaders finally agreed to reduce Greece’s €350bn debts, if only by 21%. They also agreed to take the first steps …
Speculators, assisted by the US Federal Reserve, have driven crude oil prices to unsustainable levels over the past year. Now, the Fed is withdrawing the liquidity that has financed this rise. The above chart from Petromatrix shows the surge in …
There is worrying evidence that the US may be close to recession. This may seem unlikely to those who have only known the world of the past 25 years. Between 1982-2007, US recessions were very rare. They took place just …
Q1 results were very good. But do they mean we are in a SuperCycle, as some analysts have suggested? In a major 3 page article for this week’s ICIS Chemical Business, the blog looks in detail at the risk from …
The blog is delighted to announce the title of its new eBook, jointly authored with fellow blogger, John Richardson. It explains how Western BabyBoomers are changing chemical demand patterns, again. We believe it will become vital reading for all those …
The blog spent much of 2007/8 warning of the likely impact of high oil prices on chemical demand. It was then renamed ‘The Crystal Blog’ in November 2008, as the full extent of the problems finally became clear. Today we …
They don’t ring bells at market tops, to warn about what might happen next. But the above chart may turn out to be the next best thing. It shows the relationship between WTI crude oil prices (blue line) versus LLDPE …
China’s Dalian trading suggests trouble lies ahead Read More
The blog has an incredibly loyal following around the world. 24% of its readers visit twice a week, or more. They also recommend it to colleagues. Visitor numbers jumped 50% last month. The issue is the rising uncertainty over the …
Financial markets are different from other markets. And the way we relate to them is different too. Shops, for example, would never seek to win new customers by advertising ‘Prices increased 10% last week’. Instead, they splash red signs across …
Q1 was a very strong quarter for Western companies operating at the upstream end of the chemicals value chain: • Plants were generally operating well, with few force majeures • Most importantly, the crude oil price jumped 20%. Many buyers …
Recent days have seen some signs that the tectonic plates under current chemical and polymer markets may be starting to shift. The most important has been the rapid rise in inter-bank lending rates in Shanghai. As the chart shows from …
US crude oil and product stocks have started the year where they finished in 2010. As the black dot on the above chart from Petromatrix shows, they are at yet another seasonal record. In terms of numbers, they are 101 …
We face more uncertainty today than I have ever seen over the past 30 years. Will last year’s strong performance in terms of profit continue? Or will higher oil prices ruin the party? Might China’s demand slow, as the government …
The styrene business has been increasingly difficult in recent years: • CD and video sales went online, removing the need for polystyrene (PS) packaging • Prices for the main feedstock, benzene, leapt in the mid-2000’s, due to US gasoline market …
In the Boom period, it was the investment bankers who used to walk away with telephone number fees, after convincing a CEO to go after an acquisition ‘opportunity’. Now, in another sign of the New Normal, it is a former …
When elephants fight, those around them need to be cautious. And this is the prospect for 2011-13, as the Western countries try to force the BRICs (Brazil, Russia, India and China) to export less and import more, the so-called ‘rebalancing’ …
The blog will publish its annual Budget Outlook for 2011 next weekend. And so as usual, its now time to review last year’s Outlook. Past performance may not be a perfect guide to future outcomes. But it is one of …
The blog’s former ICI colleague, Tom Crotty, aptly summarised the mood of most petchem players at this week’s meeting in Budapest, Hungary, when telling ICIS’ Nigel Davis that “2011 is a very tough call to forecast”. Crotty is this year’s …
Investors on Wall Street are no longer bothering with the boring detail of company performance. That’s the conclusion from a new study by Barclays Capital, on the correlation between movements in the S&P 500 and individual stocks. Instead, they are …
The blog remains very concerned that, overall, the economic policies adopted during the current Crisis are leading the world economy to the worst possible outcome. This outcome is totally predictable. Indeed it has been predicted by reputable experts for some …
Many readers have been taking a well-deserved break over the past few weeks. As usual, therefore, the blog is highlighting key posts during August, to help you catch up as you return to the office. August has been surprisingly busy: …
With the Chairman of the US Federal Reserve saying the outlook is “unusually uncertain“, its time to summon the chemical market genie. Of course, rubbing the lamp is not always successful. And if the genie does arrive, one can only …
The blog has had a letter published in the FT this morning, which readers might like to see. It focuses on the problem of using EBITDA measures when analysing a company’s performance. It suggests that analysts should move away from …
Over-capacity is going to be a major issue for the petchem industry over the next few years. Asian producers, in particular, are likely to be worst impacted. The reason is that they have relied on exports to China taking up …
Honam’s Malaysia buy opens SEA market share battle Read More
The latest in the American Chemical Society’s 6 monthly ‘Chemicals and the Economy’ webinar series took place last week. It was moderated by former ACS President, Bill Carroll, of Occidental Chemical, and again proved very popular. ACS reported high levels …
The US Federal Reserve and the American Chemistry Council (ACC) have joined the blog in expressing concern about the outlook for the US economy. And as the chart above of the US S&P 500 shows, financial markets have continued to …
Fed, American Chemistry Council, worry about US economy Read More
The blog’s White Paper, ‘Budgeting for a New Normal’, proved enormously popular when it was published earlier this year. ICIS therefore suggested that it would be useful to update it, 6 months later. This Update is now published. It looks …
The blog has sometimes despaired of the cheer-leading and wishful thinking of too many leading policy-makers. As I argued in the Financial Times in March 2007, before the Crisis began, “they seem to confuse being market-friendly with being friendly to …
Preparing for an Age of Austerity in public spending Read More
The blog gained some key insights into the current M&A landscape this week, at the annual Pilko & Associates Round Table, co-organised with Shell Chemicals and leading law firm Allen & Overy: • M&A has become a ‘buyer’s market’, and …
Sell in May and Go Away” is the oldest rule in stock market investment. This week has certainly provided further support for it: • The major Western stock markets are down c8% • The major emerging markets are down between …
Markets approach the “drawn-out fundamental downtrend” phase Read More
The chemical industry is a well-known leading indicator for the world economy. Yet 18 months after the financial crisis began, the blog’s review of quarterly company results reveals few signs of optimism that a sustained upturn is underway. Q1 has …
Chemical companies see upturn, but not yet a sustained recovery ahead Read More
LyondellBasell (LBI) is to exit from Chapter 11 bankruptcy on 30 April, 15 months after entering it in January 2009. The past 15 months have been an expensive lesson for those debt-holders who financed Basell’s purchase of Lyondell in July …
We are often told that investment bankers are much cleverer than the rest of us. But sometimes, they do seem to lack common sense. Their behaviour since the Crisis, in paying out $bns in bonuses to the lucky few, seems …
The blog congratulates Brenntag, the leading distribution company, on its successful flotation yesterday. Its shares were issued at €50, and rose to €52 in early trading, giving it a market capitalisation of €2.7bn ($3.6bn). New private equity owners BC Partners …
A week ago, the BBC carried a report that PetroChina had completed “preliminary work” on a possible bid to buy a stake in Ineos’ Grangemouth refinery. The BBC quoted Ineos as confirming it was in talks with “a number of …
UK media speculate over Ineos asset deals as EBITDA doubles Read More
A year ago, the Dow Chemical stock price was below $6, giving the company a total market capitalisation of just c$7bn. Since then, Dow has regained the initiative in a very focused way. First, it sold Morton Salt for $1.7bn, …
One by one, Western political leaders are coming to the conclusion that taxes on the banks need to rise. Last month, the UK proposed a 50% ‘super-tax’ on bonuses, on the grounds that “investment banks are making exceptional profits as …
Pity your poor Purchasing Director this week. They know the West is having a cold winter, but they have done their analysis and can show you slides, such as the one above from Petromatrix, that indicate the US has the …
Chemical company CEOs need to act on high oil prices Read More
Blog readers have a wide range of interests. That is clear from the list below of the Top 10 posts in 2009. It also confirms the complexity of the chemical industry, and its fascination. In alphabetical order, it is as …
The Financial Times reports today that Ineos has postponed plans for an initial public offering. It says this “was one of a range of options that had been considered by the company to strengthen its balance sheet, which was burdened …
Extended downturns, of the type that we are now suffering, generally mark a transition period from one set of business conditions to another. I look at what might be in store for us during this transition, in this week’s edition …
The blog is now 2.5 years old. Readership continues to grow, both within the chemical industry and its investment community. It is now read in 121 countries, and 2735 cities, versus 89 countries and 1244 cities a year ago. Readers …
For most of this year, the banks’ trading houses have been earning vast sums of money promoting the “correlation trade” (sell the US$, buy crude oil, gold and equities). As a result, around 150mbbls of oil and oil products is …
UK Finance Minister Alistair Darling is widely reported today as being about to announce a ‘super-tax’ on bonuses paid to bankers working in the UK. The government’s argument, notes the BBC’s Robert Peston, is that “Investment banks are making exceptional …
LyondellBasell (LBI) yesterday confirmed the rumoured takeover bid from Reliance. In a statement posted on its website, it says it has “received a preliminary non-binding offer from Reliance Industries Limited to acquire for cash a controlling interest in the company …
Reliance offers c$10bn for LyondellBasell (Update 1) Read More
Over the past year, much of the Western financial system has been on life support. Now the European Central Bank (ECB), like its peers, is grappling with the question of ‘What happens next?’ ECB Board member Lorenzo Smaghi set out …
“Never in the field of financial endeavour has so much money been owed by so few to so many. And, one might add, so far with little real reform.” Bank of England Governor, Mervyn King, proposing that banks should be …
2010 should be a better year for the chemical industry, as demand grows in line with a recovery in global GDP. But a quick V-shaped return to the 2003-7 Boom years in terms of volumes/margins seems unlikely. Governments will worry …
The blog is now preparing its annual Budget Outlook for 2010. Before this is published next weekend, it makes sense to assess the blog’s credibility by looking back at last year’s Outlook, to see how well it performed. Past performance …
The blog believes that the landscape has changed during the current downturn. We came into it on the back of a major boom in consumption, supported by reckless lending and borrowing. This mind-set seems unlikely to return quickly. Instead, as …
ExxonMobil Chemicals was 6th in the ICIS list of Top 100 companies in 2002, during the last downturn. By last year, it had risen to 2nd place, according to the latest ICIS list. One of the secrets of its success …
Cerberus’ timing was clearly not very good with its Chrysler acquisition in Q3 2007. And Steve Feinberg, Cerberus co-founder, admitted this when he told the New York Times “we were too optimistic on timing. Maybe what we should have done …
Source: Chartoftheday.com There are “lies, damn lies, and statistics” according to Mark Twain, the famous American humorist. His argument was that statistics are often (a) untrue* and (b) used without the necessary context. Last week provided a perfect example of …
As expected, Ineos have today confirmed that their proposed new covenants have now been accepted by their lenders. For those unfamiliar with the mechanisms used in the world of high-yield debt, this does not involve any new money, or a …
In 2007, Sweden was the largest private equity market in Europe, as a percentage of the country’s GDP. And the local banks lent freely, as elsewhere, to fund investments. Now they, and other Nordic banks, are struggling to minimise their …
Swedish bank takes over Top 50 European automotive supplier from private equity Read More
The chemical industry has benefited from a benign paradigm over the past 25 years: • Demographics in the west have encouraged consumption, as the baby-boom generation reached middle age • Globalisation meant this could be achieved at lower cost, by …
Global downsizing needed to rebalance supply and demand Read More
Last month, the blog introduced its new Boom/Gloom Index, designed to track sentiment in financial markets. The chart above now updates it to reflect the whole of June. The Index has continued to move up, and is close to the …
The blog is now 2 years old. Its readership is very loyal, and continues to grow. 64% of current readers bookmark the blog, and read it regularly. And it is now being read in 2088 cities and 111 countries – …
Economic recovery can’t come soon enough for Ineos. After 7 months of negotiation, it has finally agreed new covenants for its €7.3bn of debt with its major lenders. These will now be put to all 230 lenders for approval by …
The chemical industry is always a leading indicator of the global economy. One of the blog’s oldest friends used to be a central banker, and he made no secret of the fact that our discussions about demand levels were often …
The great wave of destocking is finally coming to an end. And it is clear that underlying global demand is well below previous “normal” levels. The evidence for this can be seen in the above chart, based on American Chemistry …
After destocking, chemical volumes still down 15-20% Read More
The blog’s close eye on Scotland’s media has again been rewarded this morning, as ‘The Scotsman’ reveals that Ineos have appointed Morgan Stanley, the investment bank, to advise on the sale of Grangemouth. It suggests that a company such as …
The ‘Falkirk Herald’, based close to Ineos’s Grangemouth facility in Scotland, is not normally the place that the blog would look for news of the potential sale of a major part of the world’s 4th largest chemical company. However, that …
Picture: www.businessoffashion.com A senior figure in the investment community told the blog recently that companies’ views on the outlook for the economy seemed to vary according to their own financial position: “the stronger the balance sheet, the more realistic (and …
By the end of May last year, 6.2m autos had been sold in the US market, each containing $2700 of chemicals (according to the ACC). The total sales value to the chemical industry was $16.8bn. So far this year, just …
The 3 most popular posts in May were: Dow, Ineos focus on debt issues Rotterdam oil storage running out of space Green shoots likely to be yellow weeds The blog will be celebrating its 2nd birthday at the end of …
My fellow-blogger, Barbara, cleverly spotted this week’s ‘Global Traders Summit’ in Singapore. Had this blog been there, it would have mentioned the latest, apparently fool-proof, way to determine stock market turning points, based on bankers’ interest in adultery. According to …
Dow and Ineos are two of the world’s largest chemical companies. Both found themselves in tight financial situations at the start of the year. Dow’s debt rating was cut to just above junk, whilst Ineos had to ask for covenant …
It is now generally accepted that reckless lending has helped cause the greatest collapse in the global economy since the Depression years of the 1930’s. Yet many bankers still maintain it is vital they continue to pursue “innovation” of the …
In July 2007, the US Federal Reserve warned that “credit concerns were spreading” and estimated that total bank losses due to US sub-prime loans could reach $100bn. Yet now, after the conclusion of its “stress tests”, the Fed says total …
US Fed supports Wall Street earnings, ignores corporate sector risks Read More
The European Commission has again reduced its growth forecast for the EU. It now sees a 4% decline in GDP this year, and for the first time is suggesting that recovery will be delayed until mid-2010. As a result, it …
EU sees 11% jobless; US banks raise interest rates Read More
The International eChem team are very experienced in turnarounds and restructurings. We have undertaken these both as employees within our former companies, and then as advisers. This has taught us to be alert for the ‘tipping point’, when a situation …
Chrysler. Yesterday, Chrysler entered bankruptcy. It will idle most of its US plants during the court proceedings. The government hopes the bankruptcy can be finalised in a “quick visit” of just 30-60 days. But even if this can be achieved, …
The blog’s chemical career began with selling raw materials to the paint industry during the recession of the early 1980’s. Since then, it has always regarded the decorative paint sector as an excellent real-time indicator of underlying economic conditions. Today’s …
The blog was never convinced by US Treasury Secretary Paulson’s efforts to manage the financial crisis. Its view was that Paulson avoided the real issues, and focused instead on trying to boost market sentiment. Worryingly his successor, Tim Geithner, seems …
The last 6 months have been traumatic for many parts of the chemical industry. The next 2 or 3 years may well continue to be very difficult. How should your company best position itself to survive? That is the key …
Downturns are difficult times. There is always the hope that markets might improve, and this can delay the implementation of tough decisions on plant closures. Nobody wants to shut down, and then see a competitor benefit from an improving market. …
CLICK HERE FOR PDF VERSION Recently the blog has identified a number of signs that US housing and auto markets are stabilising, at least temporarily. This should feed through into chemical demand during Q2, and enable production volumes to show …
To misquote the famous HL Mencken phrase, “nobody ever went broke under-estimating the losses caused by the credit crisis”. Initially, Fed chairman Ben Bernanke estimated the losses at just $100bn. Then, a year ago, the IMF said its estimate was …
Benzene is the blog’s favourite leading indicator of chemical industry demand. It is one of the most widely used products and, as a liquid, it is also widely traded. Its recent successes as an indicator include calling a peak on …
Tom Hicks was a major player in private equity, but then moved on to sports investment via his Hicks Sports Group (HSG). He owns the US Texas Rangers baseball and Dallas Stars ice hockey franchises, as well as a 50% …
The blog is delighted that the Financial Times’ Gillian Tett has been named Journalist of the Year, in the annual UK awards. She was the first journalist to call attention to the dangers developing in financial markets, and has been …
The blog has been reading the G-20 communiqué, and various news reports, to understand whether the London summit answered the 5 key questions it raised in advance of the meeting. Reuters provides a good summary of the outcome in terms …
The blog still finds it hard to adjust to Dow Chemical’s current financial status, following the K-Dow/Rohm & Haas episode. But facts speak for themselves. Earlier this week, S&P lowered Dow’s debt rating to just above junk grade, on completion …
Last month, the blog supported former US Treasury Secretary Brady’s argument that ‘mark to market’ accounting rules were helping to worsen the current financial crisis. It therefore welcomes the decision by the US Financial Accounting Standards Board to revise its …
ICIS Chemical Business has just published my article, ‘Low-cost operation key to survival’, which discusses business strategies for surviving the downturn. Please click here if you would like a copy. You can also hear a radio interview with ICB Deputy …
Human beings go through a number of stages when confronted by major change. As first described by Elisabeth Kübler Ross, the process starts with: • Denial that any change is taking place • Then anger at the implications of the …
Anger replaces Denial, as financial crisis evolves Read More
The G20 represents over 85% of the world’s economy. And there is certainly no shortage of major issues for government leaders to discuss when the G20 meets next month in London. But the blog is not over-hopeful about their ability …
The blog has always had enormous respect for Dow. This was due to their ability to manage unconventional risks, in a way that other chemical companies (such as the blog’s former employer, ICI), found impossible. Even when things went wrong, …
Apparently its not just Jim Cramer who is less than happy with the current performance of Dow CEO, Andrew Liveris. The New York Times notes that merger arbitrageurs on Wall Street have started to spell his surname backwards, and re-christened …
At a time of uncertainty, its sometimes helpful just to frame the questions that need to be answered about the future. Pimco, the world’s largest bond fund managers, have done just this in two separate analyses. Their answers mirror those …
Nova’s CEO, Jeffrey Lipton, has always been the great optimist of the petrochemical industry. As recently as December, he was arguing at the GPCA meeting that “demand forecasts will prove to be too low”, and forecasting a shortage of ethylene …
Vita’s restructuring was relatively simple from a legal point of view, as it just involved European rules. But Lyondell Chemical’s bankruptcy filing last month under the US Chapter 11 process seems to have thrown up some very complex legal issues. …
$26bn LyondellBasell restructuring hits legal minefield Read More
Vita Group has chemical sales of €1.5bn, 5000 employees, and manufactures in 20 countries. In December it announced that it was in talks over restructuring, to avoid breaching covenants on the €663m of debt taken on in 2005, when it …
In December, the blog noted that Japanese policymakers saw clear parallels between the mistakes they made during the ‘lost decade’ of the 1990’s, and those being made today in the USA and other Western countries. The New York Times now …
Yet again, as in October, ‘buy on the rumour, sell on the news’ has been the financial markets’ reaction to the latest efforts to solve the financial crisis. A 5% fall on Wall Street last night, in response to the …
The financial fallout from the Lyondell (LBI) bankruptcy continues, as the banks slowly begin to acknowledge their losses. According to Bloomberg, RBS has taken a $1.47bn hit, Citigroup $1.4bn, and Goldman Sachs $850m. UBS are also believed to have lost …
Prof David Blanchflower, of the Bank of England, is not optimistic that the current recession will end soon. He notes that “few macro-economists actually spotted the greatest financial crisis in a hundred years”. And in the chart above, showing OECD …
The credibility of some chemical industry CEO’s seems to be under increasing attack, due to their apparent failure to develop proper contingency plans in advance of the current recession. One example this week comes from the USA, where Jim Cramer …
A year ago, the International Monetary Fund rightly warned that the world was facing a “serious economic slowdown”. This week, it has updated its forecasts, and now “expects the global economy to come to a virtual standstill in 2009”. This …
IMF says “demand has collapsed”, sees “deflation risk” Read More
A month ago, after the collapse of the K-Dow deal, the blog suggested that Dow would need to move quickly to a Plan B. It added that “nobody would be very surprised if it now sought to renegotiate the proposed …
Bond markets are a good place to look if you want to understand the outlook for major companies in the chemical industry. A key market is in ‘credit default swaps’ (CDS), which offer insurance against the possibility that a company …
In the soccer world, the UAE has been making headlines this week. It is proposing to fund the first-ever £100m ($150m) transfer – of the Brazilian player, Kaka, to Manchester City. But behind the scenes, the collapse of the oil …
Moody’s, the global ratings agency, is today forecasting a 70% chance of a U-shaped recession, and a 15% chance of either a V or L-shaped downturn. This broadly agrees with the blog’s own view, set out a month ago. Moody’s …
Early last year, the blog flagged up a warning from Gillian Tett in the Financial Times that Iceland could go bankrupt, as its banks were “too big to rescue”. Yet at the time, the United Nations had listed it as …
Over the last few weeks, INEOS had to scramble to get a covenant waiver from its lenders, and Lyondell went into Chapter 11. Now Dow’s debt is facing a potential cut to junk status from the main ratings agencies. Dow’s …
Dominique Strauss-Kahn, MD of the International Monetary Fund (IMF), has a surprisingly hard-hitting interview today in Bloomberg. Casting aside normal central bank reticence he warns: • Their current $1.4 trillion forecast of global financial losses will soon be increased by …
The new ACC weekly report rightly notes that “any economic recovery will likely begin with a turnaround in the residential housing situation”. This is also the critical issue for the chemical industry, still reeling from last week’s Lyondell bankruptcy filing. …
The US suffered 2.589 million job losses in 2008, making it the worst year since 1945. December’s 524k losses caused the jobless rate to rise to 7.2%, the highest since 1993. Equally, the average work week fell to a record …
The fallout from the Lyondell bankruptcy continues to grow. One analyst has suggested Swiss bank UBS has exposure of $500m – $1.5bn. Other banks, including Citi and the UK’s RBS, also have large exposures. Writing-off these debts will in turn …
Those who liked the blog’s earlier satirical postings on the banking crisis and subprime disaster, may enjoy this video from the Canadian show “This hour has 22 minutes”, kindly sent to me by a US reader. The sketch’s punchline – …
LyondellBasell has become the largest-ever chemical company bankruptcy, just 12 months after its formation. Its US operations (Lyondell Chemical Co), and Basell Germany Holdings GmbH, filed for Chapter 11 protection in New York tonight. The company expects its other non-US …
The past few weeks have not been good for the chemical industry, with 4 major companies suffering significant problems: BASF warned that “customer demand in key markets has declined significantly” since October, and have temporarily shutdown 80 plants worldwide, whilst …
Manufacturing output is contracting around the world. JP Morgan’s global index sank 15% in December, and they expect “an intense contraction phase” to continue “for some months to come”. The G7 and BRIC countries are all seeing a decline, as …
The blog is now 18 months old. It has a truly global readership, and as shown in the above map, is now read in 1244 cities and 89 countries. Its aim has always been to identify ‘the influences that may …
2008 has not ended well for the chemical industry. First there was the collapse in demand, as the various value chains destocked in response to slowing consumer demand and lower oil prices. Then INEOS, the world’s 3rd largest chemical company, …
2008 has not been a good year for M&A in the chemical sector. First, there was the collapse of Hexion’s Huntsman acquisition. Today, the Kuwait government has signalled its intention to “scrap” its $17.4bn deal with Dow to form K-Dow. …
The blog has been searching the websites of the major central banks, such as the IMF, World Bank, Federal Reserve and Bank of England, for research on the history of credit crises. Several readers, including Paul Noble of Parsons Brinckerhoff, …
The recession will have a major impact on M&A activity next year, according to a new analysis by Pilko & Co. Their key conclusions are: • Increasingly,deals will be the result of financial restructurings, workouts or bankruptcies. • Buyers with …
Japan went through its “bubble years” in the 1980’s, with the Nikkei index peaking at 39000 (versus 8664 today). The blog well remembers standing in front of Tokyo’s Imperial Palace in Tokyo in 1988, when its land was said to …
There is now general agreement that we are in a global recession. The World Bank’s new ‘Global Economic Prospects’ report expects global GDP growth of only 2.5% this year, and just 0.9% growth for 2009. This is well below the …
George Soros is one of the most successful investors in recent decades. The blog came across today a report of Soros’ graphic description of the dangers of having too much debt in a business, or personally: “Leverage was like driving …
Yesterday, Dow announced its new structure post the K-Dow JV and the planned acquisition of Rohm & Haas. This covered two main elements: • Implementation of November’s cost reduction announcement • Dow’s new organisation (the chart above) The cost reductions …
In September, the blog wondered whether “China’s interest in remaining the manufacturing capital of the world may be starting to wane”. Yesterday, Lou Jiwei, the chairman of China’s sovereign wealth fund (China Investment Corporation) confirmed the new focus on domestic …
INEOS is the world’s 3rd largest chemicals company. Its €7.29bn debt burden ($9.2bn) means that it is also Europe’s largest issuer of high yield debt. This is an unfortunate combination, given today’s chemical markets. Last month, INEOS was forced to …
Foresight, and long-term relationships, have paid off for Dow. Yesterday, CEO Andrew Liveris announced that a binding agreement has now been signed with Kuwait’s PIC to form K-Dow Petrochemicals. PIC will pay $2bn less for their stake than originally agreed …
The chart presents a sobering view of recent stock market performance. It shows (courtesy of chartoftheday.com) the Dow’s performance in the first year of all bear markets since 1900. Since its 2007 peak, the Dow has fallen more than in …
Last March, the blog supported Warren Buffett’s statement that “by any commonsense definition, the US is in recession”. I also wrote an article for ICB in April, “Building your defences“, to suggest how companies could develop contingency plans to deal …
Surprisingly, our 7th European conference this week in Cologne (co-organised with ICIS), was one of our most successful. Delegate numbers were down, as companies cut travel budgets. But those attending said they had gained much more, than if they had …
The Queen of England recently asked “Why did nobody see the financial crisis coming?” The Financial Times took the view that “Some did, Ma’am. Some did.” It then initiated a search for these people. Today’s Financial Times now recognises some …
President-elect Obama has become the latest world leader to “get it”, as his wife Michelle once remarked. For far long, politicians seemed to believe their platitudes about the “underlying strength” of their national economies. This meant their proposed remedies were …
The World Bank has cut its growth forecast for China’s GDP to just 7.5% next year. Only 3 months ago, it was expecting 9.2%. And the Bank warns that the economy is dependent on “higher public spending” for more than …
The UK’s Finance Minister, Alistair Darling, was the first western leader to warn that the current recession was the worst in 60 years. He was also the first to effectively nationalise major banks, to stave off their collapse. Now he …
My colleague Bob Townsend is well known to many in the chemical industry as an olefins expert. He has pointed out today’s most unusual situation in olefins. Normally, an unplanned outage by one or more crackers would cause major disruption. …
6 weeks ago, I warned that “the scariest moment of my 30 year chemical career” was about to be repeated. This had been in 1980, when “for some weeks it seemed that demand for many petchem products had simply stopped”. …
Current market conditions are causing problems for everyone in the chemical industry. But as the blog has long feared, they are particularly testing those companies with higher debt levels. On Friday, Moody’s announced a downgrading of the Corporate Family Rating …
LyondellBasell debt downgraded, INEOS seeks waivers Read More
The first-ever G-20 meeting of Heads of State was a relatively quiet event, without the presence of President-elect Obama. Two main areas seem to have been discussed: • Regulatory reform, where finance ministers have been given until the end of …
The Financial Times series on surviving the downturn focuses this week on CFOs. It includes advice from Feike Sijbesma, CEO of DSM, who suggests that “you need to see how creditable your debtors are, very quickly”, and advises that “maintaining …
The blog’s forecasting record is reviewed in ICIS Chemical Business this week. Click here if you would like a copy. The blog’s aim is to “highlight relevant information for the busy executive, and to provide relevant and actionable analysis of …
The G-20 was created in 1999, after the financial crises that had hit emerging countries from 1997 onwards. It includes the G7 group of major industrial companies, plus the main emerging economies, including the BRIC countries (Brazil, Russia, India, China). …
“Our normal customers have no orders to place with us, and our credit department won’t let us sell to others who might want to buy”. The blog was given this plain-spoken assessment of current chemical market conditions by one of …
“Fundamental reassessment of the value of virtually every asset” Read More
Last month, the blog titled its 2009 Outlook, Budgeting for Survival. This week, the Financial Times has begun a series on developing recession survival strategy. Its key tips are: • Manage your cash. Don’t spend money unnecessarily. • Keep a …
The blog has been thinking about last week’s leaked report from the International Energy Agency (IEA). This said that the world needs “to invest $360bn each year until 2030 to replace falling oil production and increase supply”. The IEA based …
Last week, the Financial Times tried to lighten the current mood of doom and gloom. It began a letters page discussion about the merits of humour as an antidote to panic. Many blog readers clearly enjoyed the recent posting ‘A …
Last week, the blog didn’t know whether to laugh or cry when Alan Greenspan told Congress that he was “in a state of shocked disbelief” to find that that his self-regulation policy for banks had failed. Gretchen Morgenson of the …
The blog first raised this issue last December, when noting that global chemical industry production growth had already “slowed significantly”. At that time, it questioned whether “central bankers will be able to wave the magic wand that restores us to …
Many Asian companies have been cutting back petchem production in recent weeks. Now TOTAL have become the first to follow suit in Europe, with the announcement that they will shutdown the Carling No 2 cracker for a month from mid-November. …
One of the oldest rules in investment is that ‘When a good management finds itself running a bad business, its the reputation of the business that survives’. Legendary US investor Kirk Kerkorian has just proved he is no exception. Back …
Kerkorian down $650m: Lahde up 1000%: Buffett buys Read More
The blog prefers to be optimistic. But 30 years in the chemical industry has taught it to be extremely realistic. So its motto for 2009 Budgets is ‘batten down the hatches’. Chemical companies are likely to be sailing in some …
Today sees a supportive follow-up in the Financial Times to yesterday’s posting about LloydsTSB, and its willingness to rebuff those who parroted the ‘shareholder value’ mantra. The man who led the bank’s director development programme reveals that its former Chairman, …
On Monday, governments announced c$3.5 trillion of recapitalisation and capital injection into the global banking system. One would have then expected the major investment institutions to rally round in support. But on Wednesday, they conspicuously failed to do this. Instead …
In August, the blog welcomed the statement by UK Finance Minister, Alistair Darling, that the ‘global economy was at a 60-year low’. It noted that he was ‘the first western politician to abandon reassurance and instead to focus on the …
Sir Fred Goodwin, CEO of RBS, was one of the poster boys of the new banking model. Along with his peer group, he preached the virtues of the ‘efficient balance sheet’. Equity was for wimps. The blog warned over a …
The UK’s Sunday Telegraph newspaper reports that ‘Ineos, the chemicals group which is one of Britain’s biggest private companies, is considering selling assets in an effort to reduce its debt burden’. It adds that ‘the company, which has expanded rapidly …
You’re looking at the man who, according to today’s New York Times, is now responsible for ‘choosing which US financial institutions live, and which die’. He’s 35, and the assistant Treasury secretary for financial stability, Neel T Kashkari. His qualifications? …
It is nearly time for the blog’s annual forecast of chemical industry prospects. Of course, past performance is not necessarily a guide to future outcomes. But it is one of the better guides that we have. So before publishing the …
Many new readers have turned to the blog, to better understand what is happening in the financial world, and to chemicals demand. They might like to start with the 7 September posting, which forecast the current collapse: ‘The price of …
Winston Churchill, a long-standing friend of the USA, once irritably but acutely observed that ‘one can rely on America to get to the right conclusion, when all other options have been exhausted’. So, hopefully, it will prove with the financial …
Collapsing housing markets are creating major problems for chemical companies worldwide. Now JD Power, the leading auto industry research firm, is warning that ‘the global auto market in 2009 may experience an outright collapse.’ They add that ‘while mature markets …
As the blog predicted, Iceland has been forced to call on the IMF for help. Finally, the country’s leaders have recognised that their $20bn economy couldn’t support the level of debt built up during the ‘go-go’ years. The pity is …
Readers may remember the satirical John Bird/John Fortune video on the causes of the housing crisis. Now the Financial Times Diary has provided a satirical view of the causes of the banking crisis: A new bank model 1) Take money …
The German word ‘Zeitgeist’ describes ‘the ethos or mood’ of a select group of people. Back in January, the blog noted a change underway in the financial zeitgeist. Today’s Wall Street Journal, normally a cheerleader for the financial community, provides …
The International Monetary Fund (IMF) has now increased its estimate of total sub-prime losses to $1.4 trillion, versus $945bn in April. It estimates banks will need to raise $675bn in new capital. And Dominique Strauss-Kahn, the IMF MD, has called …
The UK is to invest £50bn ($85bn) to rescue its major banks, via part-nationalisation. In addition, it will provide unlimited amounts of cash via loans. The aim is to try and unfreeze the UK’s banking system, which has been on …
The moment the blog has long feared, and warned about, may be about to arrive. It appears that we may be about to revisit 1980, when for some weeks it seemed that demand for many petchem products had simply stopped. …
The blog has given up counting the number of US banks that have failed in recent weeks, away from the headlnes. Ken Lewis, CEO of Bank of America, predicted last month that half of all US banks would fail, and …
A year ago, the blog was in a minority of one, with its forecast for 2008. Its heading was ‘Budgeting for a Downturn’. By contrast, the consensus post-EPCA was for $70bbl oil, debt market problems to be contained, and for …
‘Buy on the rumour, sell on the news’ is the classic definition of a weak market. So the US stock market’s reaction to the passing of the US bailout is a worrying indication that further problems may lie ahead. On …
Last March, the blog noted an excellent article on Iceland by Gillian Tett of the Financial Times. She argued that Iceland was ‘the first country run like a hedge fund’. And she worried that its banks might prove not ‘too …
Warren Buffett, the world’s leading investor, was quite candid yesterday in his views on the US economy. `In my adult lifetime, I don’t think I’ve ever seen people as fearful, economically, as they are right now,’ Buffett, 78, told PBS. …
Ken Rogoff was Chief Economist at the IMF, and is now a Harvard professor. His view on Wall Street’s current problems is refreshingly different. Writing in The Guardian, he notes that ‘efficient financial systems are supposed to promote growth in …
More banks disappeared in Europe and the USA over the weekend: • Bradford and Bingley, one of the UK’s largest mortgage lenders was nationalised. The government will now pay $18bn to Spanish bank Santander to enable a transfer of retail …
Another day, another bank failure. That almost seems to be the pattern in US financial markets at the moment. Yesterday the nation’s 6th largest bank, Washington Mutual, was taken over by government regulators and sold to JP Morgan. The 119 …
Peer Steinbrück, the German finance minister, has joined the growing list of politicians with a view on the current economic crisis. His analysis differs markedly from that expressed by President Bush on Wednesday. ‘The financial market crisis is above all …
In early August, the blog noted that politicians were beginning to recognise the seriousness of the economic situation. First, China’s finance minister Liu He warned that ‘an economic restructuring was inevitable’. Then the UK’s finance minister said the ‘global economy …
The proposal now before Congress to authorise the spending of $700bn to bail out Wall Street contains just 849 words. It avoids the need to go into further detail via its suggestion that the Treasury Secretary should simply have unlimited …
Does the US Treasury read the blog? Just hours after the chart below was posted, rumours began to circulate of a major government initiative to try and stabilise financial markets.
Alan Greenspan’s comments (below), led the blog to investigate how the world’s major stock markets had moved since their recent peaks. All, as shown in the chart, are now in bear markets. Stock markets often forecast economic developments 6 – …
Another day, another rescue. This time on the other side of the Atlantic. HBOS, the UK’s largest mortgage lender, with a 20% market share, announced this morning that it was being rescued via a merger with the Lloyds TSB bank. …
‘A disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth, and materially weaker economic performance,’ according to the US Federal Reserve last night. As a …
The blog has never liked disaster movies, but it was quite a weekend for those who do. First, there was the hurricane hitting Houston and Texas. I used to live in Houston, and watching the pictures of the damage, could …
Housing is a vital market for chemical companies. It boomed in the US and other Western countries as credit standards were relaxed between 2003-7. Now it is at the centre of the credit crunch. Martin Feldstein, Harvard economics professor, and …
When you’re the richest man in the world, you can generally say what you think. Thus Warren Buffett reflected reality back in March, when he commented that ‘by any commonsense definition, the US is in recession’. Yesterday, he probably ruffled …
Tighter lending standards, and higher spreads for borrowers, are continuing to create headwinds for the US economy. As far back as January, senior loan officers at major US banks were reporting that they were tightening mortgage lending standards. Yesterday, the …
A year ago, it was fashionable to claim that the Asian economies had ‘decoupled’ from the West. Any slowdown would simply pass them by. Last December, I noted a rare dissenting voice, Stephen Roach of Morgan Stanley, who commented that …
I noted back in February that US banks were tightening lending standards into the housing sector. Now they are doing the same with business loans. The New York Times reports today that businesses around the country are finding it more …
There is little doubt that chemical growth is weakening. The above chart, taken from Kevin Swift’s excellent weekly report for the American Chemistry Council, indicates that a serious downturn is underway.
I suppose when an industry has lost $400bn in a year, some sacrifices have to be made. In May, I documented how Deutsche Bank was no longer approving expense claims for ‘adult entertainment’. Well, things have got worse since then, …
The current downturn is different from anything that has occurred in the last 15 years. Policy makers are clearly worried. The UK’s Finance Minister, Alistair Darling, told Bloomberg today that ‘the effect of what has happened is going to be …
Andrew Sentance of the Bank of England has issued a very clear analysis of current oil and commodity price movements. It rejects the view that these have been primarily caused by speculators. Instead, it points to increasing demand, and lack …
Last September, I wrote to the Financial Times on the subject of the US sub-prime disaster. At a time when many banking commentators were trying to minimise the problems, I suggested that ‘a “buyer of last resort”, such as the …
Dow’s potential interest in Rohm & Haas had been much rumoured since December, when it announced the petchem/polymer JV with Kuwait’s PIC. That deal has yet to close, but further evidence of the growing link with Kuwait comes with the …