BUSINESS & FINANCE Uncertain Outlook If business trends follow their postwar pattern, the chemical industry may be headed for a leveling off I N V E N T O R Y BUILD-UPS and rising cap
ital outlays m a y lead to periods of readjustment in t h e chemical industry. This is t h e gist of a recent analysis m a d e b y Clark, D o d g e & Co. T h e N e w York brokerage firm's chemical specialist, John F . Bohmfalk, Jr., compares t h e current position of the industry to its plateau periods of 1947-49 and 1952-54. And h e looks for a relatively poor year in 1958—59, somewhat similar to t h e recession years of 1949 a n d 1954. O n t h e other hand, he points out, t h e industry now is build ing for t h e future, laying the ground work for greatly enlarged future busi ness. T h e year 1960, as Bohmfalk sees it, could be a real winner—similar to 1950 or 1955. • Everything Up—But Earnings. T h e current industry picture is one of high
Rises
production levels, modest sales gains, and sharply rising costs. Chemical production is running about 8 3 % of capacity, and sales are averaging about 8 r > higher than a year a g o . Inven tories are still building u p , although they might hold at t h e level of $ 4 billion for chemicals a n d allied prod ucts. And capital outlays are rising t o new peaks, with $1.8 billion of invest ment estimated for this year by t h e Department of Commerce compared with capital spending of only $1.0 billion in 1955. The combination of high inventories and high construction outlays, in r e lation to current sales, seems to point to trouble for the chemical industry. Higher costs of raw materials, wages, and transportation have increased its difficulties a n d are reflected in lower
a n d Plateaus Form a Pattern in Postwar ι
Year
SI.14
1947
$2.10
on page 94)
Industrial Chemicals
Capital outlays {billions)
Outlays as % of sales
1.84
SI.12
98%
Inventories 1 to sales
( Continued
Chemical Business
Chemical and Allied Products Average Monthly Inventories Sales {billions) (billions)
profit margins for chemical companies. In spite of sales increases, earnings are, on balamce, b a r e l y holding even. This state of affairs is expected to continue into 1958, according to BohmfaLk. T h e table below suggests, as a first: approximation, that 1958 in dustrial chemicals production could drop about 3^o. In view of t h e current substantial capacity build-up, produc tion c o u l d drop t o something like 7 2 % of capacity as a result. W i t h inven tories erdging u p w a r d toward 1.85 times monthly sales, chemical firms will find it increasingly difficult to raise prices a n d will b e increasingly vulner able to a n y d i p or hesitation in business. They m a y find i t necessary t o readjust capital spending programs. So f a r , most chemical companies have given no indication of cutting back capital programs; in fact t h e ma jor companies talk of higher spending in 1958 and 1959. However, t h e capi tal spending atmosphere c a n change very quickly, a n d capital programs nor mally a r e soon c u t back when business falters, a s in 1949 or 1954. A shadow of pessimism has been noted creeping into chemical circles, believed to b e largely leased on lack of control over the costs of doing business. t-Cyclical P a t t e r n · Although waves
Index of production
Index »j capacity
Production as%of capacity
95
121
78%
Rate of capacity increase 10%
| 1948
1.20
2.20
1.84
1.12
94
105
133
79
9V2
1949
1.11
2.05
1.85
0.77
69
101
1^2
71
7
1.37
2.05
1.50
0.77
56
126
ISO
84
57*
1.54
2.75
1.79
1.25
81
146
1«52
90
8
1.51
3.00
1.99
1.39
92
140
177
79
97*
1.61
3.00
1.87
1.43
89
154
193
80
9
1954
1.63
3.00
1.84
1.13
69
153
206
74
67i
1955
1.92
3.10
1.62
1.02
53
184
216
85
57*
2.02
3.50
1.74
1.46
72
195
232
84
77,
2.15
3.80
1.81
1.80
84
203
252
81
872
2.10
4.00
1.90
1.70
81
196
272
72
8
1959 E s t .
2.30
4.00
1.74
1.30
57
244
287
85
572
1960 E s t .
2.80
4.40
1.57
1.40
50
270
302
89
5
1950
|
1951
ι
1952 1953
1 j
1956
\
1957 E s t . 1958 E s t .
90
|
C&EN
JULY
I, 1 9 5 7
-
ISTeed I V E E K ιΓ O r d e r i t :Fi*orja. ^ΠΡΠ=ΠΤ rr . IMCethyl ethyl ketone is a low-boiling, active solvent used in the preparation of surface coatings of the nitro cellulose, vinyl and acrylic types. It is used extensively as a de-wa\ing agent for refining lube oils and as a solvent for synthetic rubber cements and other adhesives. MEK's high solvent power makes it an effective ingredient in paint and varnish removers, and in industrial cleaning compounds. As a chemical intermediate, MEK is a source of
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JULY
I.
1957
C&EN
91
BUSINESS & FINANCE
PRODUCTION {Chemicals & A l l i e d Products vs« I n d u s t r i a l ) BASE PERIOD INDEX, 1 9 4 7 1 9 4 9 = 100, SEASONALLY ADJUSTED I CHEMICALS & -ALLIED PRODUCTS L
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1957 C&EN
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of expansion and contraction are disclosed in t h e accompanying table, the Clark, D o d g e study does not attempt to forecast a general recession for 1958. But t h e statistical material does point u p a rhythmic pattern in the chemical industry, which m a y b e moderated in the future. And it shows that in t h e past 10 years, a surge in sales, as in 1950 or 1955, is regularly followed by attempts t o increase inventories and plant capacities to more comfortable levels in line with industry growth patterns. T h e following plateau of sales at t h e new, higher level brings a period of digestion; n e w capacity is brought in and competition realigns markets. Then a n e w upswing in sales sets off another period of expansion. T h e cycle is not independent of business in general, of course. Data estimated for 1957-1960 are only illustrative of trends, Bohmfalk cautions, a n d any resemblance to what actually happens is purely coincidental.
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