International
European chemicals output trending downward France Chemical production index3 175 |
Chemical price index 280 f 270
170 260 250 160
— —
240 230
155 220 150
1111 1111 11111
Lull'LL LLI ULLU
210
JASONDJ FMAMJ JASO L_ -1980-1979-
J A S O N D J F M A M J J A SO l —1979—' ' 1980 '
West Germany Chemical production index 1601
Chemical price index 1551
150
145 r—
120|
I I I I I I I I I I I I l I I
140 I i I I I I I I I I l I I I I
JASONDJFMAMJJASO ! 1 - 1^ 9< 8" >0 -1979-
U.K. Chemical production index3 150
J A S O N D J F M A M J J A SO I - 11Q7Q 1Qftn 1 979- 1 I -1980-
Chemical price index 370|^ ~ " 360
140
—
350 340
130 330 320
120
310 110
I I I I I I I i i ri i i f
J A S O N D J F M A M J J ASO J -1980-1979-
300
^iliiiwr--i;ti-:n-ki'|---i-
J ASONDJ FMAMJ JASO -1979-
l_
a Seasonally adjusted. Note: Base year for all indexes is 1970 = 100.
20
C&ENJan. 26, 1981
-1980-
A glance at the production index charts for France, West Germany, and the U.K. tells more eloquently and more succinctly than words the parlous state of the chemical industry in those countries and throughout Western Europe generally. Without exception the trend is downward. Between January and October last year * the most recent month for which data are available, chemical production in France dropped 10% in contrast to a 1% rise in the like 1979 period. During the 12 months of November 1979 to October 1980, output slid 8%. The pattern is similar in West Germany and the U.K. For West Germany, last October's production level was off 5% from that of the previous January, whereas in 1979 there was an increase of 9% during the same time span. In the U.K., the swing was even more marked. Chemical output there in October last year was down more than 17% from January, compared to a 20% rise in 1979. The decline has been steady and continual in France and the U.K. A very slight upward movement in September may indicate that the trend is about to be reversed. West Germany's production index, unlike that of France or the U.K., isn't seasonally adjusted. Consequently, the fluctuation in value from month to month appears wider. For example, output in July and August was well down, reflecting the usual slowdown of business activities during the summer period. Most analysts blame the 1980 decline on the considerable degree of destocking that began to take its toll on chemical producers early in the second quarter. Customers reduced their purchases and worked through materials they had accumulated as a hedge against anticipated price increases. Compounding this effect was the slack level of demand in the marketplace. U.K. chemical producers face an additional problem. Not only is their domestic market weak, but the strong value of sterling relative to other currencies has been making it that much more difficult to compete on world markets. On average, the prices chemical companies charged for their products are rising. However, the rate of increase during the first 10 months of last year w£s well below that of 1979 as companies fought to hold onto their market shares and to stave off competition. Return on sales is well below the level needed to keep pace with inflation and rising costs, or to provide adequate returns for future investments. Costs are due to escalate further this year. This is certainly true for the petrochemical industry, with naphtha prices on the upswing. First-quarter contracts now being signed put naphtha at about $360 per metric ton, up some $50 from last year's fourth-quarter contract price. The higher price will have its effect on the cost of primary olefins. Reorganization and belt-tightening are rife across the board in the European chemical industry. It's fair to predict that when this recessionary period ultimately comes to an end, most major chemical-related companies will have a somewhat different corporate profile than they have now. Dermot O 'Sullivan, London
