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CW's CEO Round-table: What a Difference a Year Can Make
9:49 AM MDT | May 6, 2011 | By BOUDEWIJN VAN LENT
At Chemical Week’s CEO Roundtable one year ago, CEOs of the chemical industry were debating if the rebound they started to see was going to last. Would we see a U shaped or maybe even a double dip recovery? A V-shaped recovery was not the most likely outlook at the time, but that is what happened.
This week, I once again had the pleasure of participating in Chemical Week’s annual CEO Roundtable in New York City. CEOs are seeing demand has come back sharply over the last year and is now at 90-95% of the level in ‘07-08. Several products are even in short supply.
In the downturn companies rationalized cost, managed their supply chain more tightly and potentially closed assets or changed them into making specialty products. Now one after the other is reporting profitability above 07-08 levels. They have sustained the cost improvements and have been diligent in their pricing practice.
A common view is the current margins are sustainable for the specialty products, but that commodity products might see eroding margins when the cycle turns again. They see some cost creeping back in, but it is mostly related to support the volume growth. Rising oil prices and associated raw material costs remain a concern, but have so far not affected the rebound.
New capacity is expected to be built in the emerging markets. The U.S. will continue to focus on efficiency and potentially debottle neck some assets. Merger and Acquisition activity has already picked up and is expected to increase further. Several PE companies see potential in the chemical industry as well, demonstrated by the recent acquisitions of e.g. Lubrizol (Berkshire Hathaway) and Styron (Bain Capital).
And then there is the potential impact of the Natural Gas in the Marcellus Shales for the U.S. chemical industry. This opens up the opportunity for lower energy and raw material costs. Nova Chemicals e.g. announced back in March the cooperation with Caiman for supply of Ethane out of the shales in West Virginia. There is also discussion about Chemical industry potentially starting operations in states like Pennsylvania, West Virginia and Ohio in years to come. The industry has to ensure that environmental concerns are addressed appropriately to obtain the benefits of Marcellus Shales Natural Gas.
The Chemical Industry has certainly a different perspective from a year ago. Now they need to make clear to students that this is an industry in the US with a promising future, so they can hire the workforce with the appropriate technical background.