Economic Recovery - Optimism for Chemicals Manufacturers?

After a particularly hard year, chemicals manufacturers are looking for some light at the end of the tunnel, signalling an end to a sustained period of plant closures, job losses and significant cost reduction.

The question of whether we are now entering a sustained recovery is now being widely debated in the media. My colleague Paul Hodge has examined this question closely in his excellent 'Chemicals and the Economy' blog and has been closely following trends in automotive and construction markets as well as looking at factors such as the impacts economic stimulus packages, particularly in China and the US.

Certainly companies have seen improved results in the first half of 2009, with demand increases in many sectors of the industry. For manufacturers, however, I see very few signs of this translating into increased levels of spending. Capital investment is still being limited to sustaining and HSE related projects and all discretionary costs are still being very tightly controlled.

The message for manufacturers is that the challenges will continue for some time yet. There may still be a requirement to reduce staffing levels to achieve cost targets. Delays or deferral of major turnarounds may be requested. There will be cancellation or deferral of ‘non-essential’ capital expenditure. There will be frequent changes to production plans due to low inventory levels.

As a consequence, it is still essential to closely monitor the morale of your operating teams and to manage the situation carefully. Most important is to ensure that levels of risk do not increase to unacceptable levels.