Scarcities threaten new plant schedules Since early 1975, engineering and con- ecutives surveyed expect prices to rise struction companies have enjoyed a more than 10% during the balance of breather in the availability and cost in- 1975. Another quarter expect prices to flation of equipment and personnel for stabilize, and the remaining quarter building new chemical plants. But this look for a decline. breather soon may come to an end. The same split in response resulted The shortage problems of 1973 and on the level of current prices compared 1974 once again may face the engineer- with prices at the peak of the 1974 deing and construction industry begin- mand for process equipment. Half the ning in 1976. And these renewed short- executives in the survey reported prices ages could last possibly the rest of this up more than 10%, a quarter said decade. prices had stabilized, and a quarter A return to shortage conditions was said prices had declined. the forecast from a number of speakers For specific kinds of equipment, at a meeting of the engineering and Eggleston gives prices from manufacconstruction contracting committee of turers worldwide in index form, Januthe American Institute of Chemical ary 1974 = 100. He also forecasts price Engineers in Houston earlier this trends to October 1976. In general, month. These speakers went into con- Japanese equipment prices are below siderable detail on the current and and will remain below those of the near-term future supply situations for U.S. and Europe. specific process equipment and for perFor example, producers of centrifusonnel. gal compressors haven't felt the general As demand rises again, these speak- business recession. Prices now are ers forecast, there will be limited ca- about 140% of January 1974 prices and pacity to produce many fabricated will go to about 165% in another year. items for plant equipment. This will The order backlog remains high and lead to higher prices and longer deliv- continues to rise. By the end of the ery times. In addition, there will be year, Eggleston expects deliveries to limited personnel available, both in stretch out to 130 weeks. engineering and other technical disciIn another equipment area, producplines and in construction crafts. ers of circulating water pumps are enThe same problems experienced countering severe problems in getting about two years ago were as severe as necessary castings and forgings. These at any time since the end of World problems have arisen from other supWar II., Delivery times lengthened to pliers' costs of meeting pollution conyears for items on which delivery times trol and safety regulations. These costs formerly were counted in months. have caused many small firms to give Prices rose, and vendors frequently up the business. U.S. prices for such avoided fixed-price contracts in favor pumps are more than 160% of the Janof contracts specifying price at deliv- uary 1974 level and will trend upward ery-time levels or very rapid escala- to 185% by next year. tions of prices. The picture is brighter for heavyFuture delivery and cost of fabricat- wall reactors, conventional pressure ed items for the process industries will vessels, and heat exchangers. Although vary with the item, according to John prices continue to rise, producers have E. Eggleston of Bechtel Corp., who re- added shop capacity. This new capaciported results of a survey of executives ty has brought delivery times down of major supplier firms. Half of the ex- from 40 months to about 20 months.
Lattin: free engineers from routine
Shops making pressure vessels are less loaded with orders than are reactor shops. The result is that pressure vessel prices have declined as much as 10% this year in some instances. Eggleston indicates that not enough work exists now to stabilize these prices for the rest of this year. Heat exchangers have had delivery times drop by as much as one third to 14 to 16 months. Prices are up but not as much as they might be because of a softer market. Bookings in shops fabricating steel for heat exchangers fell off sharply in late summer 1974. Still, most of these shops had backlogs large enough to stay busy into 1975. This year, bookings have picked up again but not to the level of 1973 and 1974. Prices continue to rise because of increases in materials and labor costs, but profit margins remain insufficient, industry sources believe. Prices of valves increased 100% in 1974, Eggleston says. Now prices are flat. He doubts that much of a price increase could be put through in the rest of 1975 because market strength is not there. Later on in 1976, as the work load builds up, prices will rise again. Delivery times for standard cast-steel valves have dropped significantly and currently run from three to five months. Prices of instruments, up about 50% from January 1974 prices, have leveled off. Now firm price quotations are
Prices for chemical process equipment will be rising again worldwide next year Price index, January 1974 = 100
200
200 180
asdfasdfasd
Compressors, centrifugal (process, 25,000 hp)
asdfasdfasdf 180
160
160
140
140 120
120 i
asdf «S888S E u r o p e
100
100
Japan
80
80 •1975
1976-
-1975
1976-
1975 ·
•1976
Source: Bechtel Corp.
Oct. 27.1975C&EN
13
available with relatively short delivery times. Control valves, generally included in the instrumentation category, have had a different price performance from that of instruments themselves. Prices have risen and continue to rise because manufacturers face much the same problem of getting castings as do makers of standard cast-steel valves. Manpower availability has improved in the past year, too, says Siegfried E. von Kutzleben of Lummus. There are, however, geographical limitations, he adds. Hence, flexibility in assigning personnel to different regions can help both the owner and the contractor. Longer term, manpower shortages may hit the engineering and construction industry. The reason would be the cyclical nature of the business, von Kutzleben says. The industry will be in trouble if it cannot counter its traditional cyclic nature with career advancement, job stability, and other buffering features that young engineers look for today. A shift to more use of para-professionals and technicians is coming, say both von Kutzleben and Clark P. Lattin Jr. of M. W. Kellogg. This development will make an engineer more valuable to himself or herself and to society. If freed from routine and nontechnical activities, the engineer can put maximum time on the purely technological aspects of his or her project, Lattin explains. Construction personnel in the crafts seldom have a balance between supply and demand, von Kutzleben points out. Currently, unemployment in construction is the highest of any industry. Yet, this is an oversimplification, for availability varies widely between geographical areas and within companies. The keys to solving this problem are creativity in deployment of construction labor and more attention to productivity. Deployment includes devices such as getting more trainees and letting these trainees do simpler tasks while experienced employees do the difficult work. Productivity can be increased if a worker identifies well with the work and the company rather than just with the labor union, von Kutzleben adds. Lummus tries to help construction employees develop pride in their craft and to develop high morale on the job site with measures such as instruction on good construction practices and on skill improvements. The many unknowns facing the engineering and construction industry make reliable forecasts on personnel and materials needs difficult, if not impossible, several speakers say. The reasons are many. Some factors cited frequently at the Houston meeting were the effects of Project Independence, of giant petrochemical plants proposed for the Middle East, and of the longer-term course of the economy. Bruce F. Greek, C&EN Houston 14
C&EN Oct. 27, 1975
International
Hoechst suffering in business downturn Just how badly West European petrochemical firms have been hit by the current business recession is exemplified by Hoechst's latest financial results. From January through August, domestic sales of Hoechst A. G., one of West Germany's largest chemical companies, declined 9.5% from that for the like period last year. Global sales were off 15.6%, and exports fell 21.4%. "The upturn we had hoped for has not appeared, and an upward trend is nowhere to be seen," is how chairman Rolf Sammet dolefully put it in Frankfurt recently. Hoechst's earnings also reflect the adverse business trend. Pretax profit of the parent company in this year's first quarter were $77 million. In the second quarter, the figure went down to $34 million. "There can be no doubt that profits in the third quarter will be even lower than in the second," Dr. Sammet says. He cites several factors that have contributed to the earnings decline. One is the low utilization of plant capacities. This level fell from 70% in the first quarter to 64% in the second, and averaged only 54% in July and August. The downward drift in prices of products compounded the problem as did the rising costs of raw materials. During the first eight months of this year, Sammet estimates that his company paid an additional $42.7 million for feedstocks. Increased labor costs also added to Hoechst's higher operating expenses. "In West Germany," Sammet claims, "unit labor costs displayed the greatest increase when compared with those in most industrial countries, particularly the U.S. We are now feeling the results." On the sales side, the fibers sector is giving Hoechst management the greatest cause for concern. "For the first time since the end of the 1950's we have been forced to take considerable losses," Sammet says. "Worldwide competition has led to catastrophic
price reductions. On all markets right across the board, prices for our main products today are about 20% below last year's level." There are some bright spots in the otherwise gloomy fibers business. Sammet notes that in the U.S. and Brazil, where his company has major fibermaking facilities, demand has improved in recent months. And in the West European market, there has been an upturn in demand for texturized filament yarn to supply the knitted goods industry. Nevertheless, utilization of plant capacity for polyester fibers and rayon staple fibers continues to be poor. Part of the problem stems from imports of textiles into Europe from "lowpriced countries," Sammet explains. Too, exports of yarns and fabrics from European plants have declined. Further compounding the situation is the increase in fiber output from plants as a result of technological innovation, and the building of fiber units in countries that were important export targets. "The result," he maintains, "is that the balance between supply and demand of man-made fibers will not be restored very quickly even after the present recession has been overcome." The plastics business is equally dismal. Utilization of Hoechst's plant capacities for large-tonnage plastics is even worse than is the case for fibers. Output from polyethylene, polyvinyl chloride, and polystyrene units currently is running at 50 to 55% of the design capacities of these plants. Moreover, "the hard competitive battle at home and abroad has brought about a large fall in prices," he says. By comparison, other areas of the company's activities have held up well. Sales and earnings of the pharmaceuticals division remained unchanged from last year. And the return on sales of inorganics and organic chemicals and agrochemicals is "relatively favorable." The situation has led Hoechst management to reconsider its investment plans. No major projects are now conSammet: upward trend noUto be seen templated in West Germany or elsewhere. One casualty of this decision is the Port Arthur, Tex., complex of American Hoechst (C&EN, Oct. 6, page 8). And in the Netherlands, the company has delayed development of an extensive network of chemical plants at Flushing at least a year. Looking ahead to next year, Sammet expects to see "a distinct upward turn in business. On an absolute scale, however, we can only anticipate sales that, when price adjusted, will not be higher than those of 1973. We shall not achieve full utilization of plant capacity, so that many of the problems of 1975 will still be with us in 1976." D
